Diabetes
	 — 
	Question

Lord Sharkey: To ask Her Majesty's Government what data they have on, or what best estimate they can give of, the extent to which the consumption of sugar will contribute to the substantial increase predicted in the incidence of diabetes in England and Wales.

Earl Howe: My Lords, the Government currently cannot provide an estimate of the extent to which sugar intake will lead to future incidence of diabetes in England and Wales, because, on balance, there is no clear evidence that sugar intake alone specifically causes diabetes. Obesity increases the risk of type 2 diabetes. The habitual consumption of calories in excess of needs for a healthy body weight results in weight gain, irrespective of whether these are from sugar or fat.

Lord Sharkey: My Lords, by 2050, on current trends, at least half of adults and a quarter of children are predicted to be obese, which will cause a huge epidemic of diabetes. Many experts agree that the excessive consumption of sugar is a factor in obesity and in diabetes. In fact, US scientists have concluded that sugar consumption levels are now so harmful that sugar should be controlled and taxed in the same way as alcohol and tobacco. Will the Minister give urgent consideration to taxing sugar in processed foods to help avert an imminent public health disaster?

Earl Howe: My Lords, we keep the question of taxation under review in the light of emerging international evidence on its impact. That will include looking at the experience of the recently introduced tax on saturated fat in Denmark and what effect it has had on diet and health. With any fiscal measure, there is always a risk of unintended consequences, so we would have to look at this particularly carefully.

Lord Alton of Liverpool: My Lords, did the Minister have a chance to see the report from the London School of Tropical Medicine and Hygiene, published earlier this month, which suggested that if obesity levels could be reduced, there would be sufficient food for 1 billion people worldwide. The report pointed particularly to the United States of America and at western Europe. Does this not both justify the Government's campaign to reduce obesity and illustrate the truth of Gandhi's remark that there is sufficient in this world for people's needs but not for their greeds?

Earl Howe: I agree fully with the noble Lord. In this area, the message has to be that a healthy balanced diet is what we should all aspire to. As I mentioned in my initial Answer, obesity is one of the prime drivers for diabetes. If people can moderate their calorie intake to match their energy consumption, the world would be a healthier place.

Baroness King of Bow: My Lords, the Minister will be aware that increased sugar consumption leads to obesity and, in my view, diabetes. Is he also aware of the many studies, including one from Princeton University, which show that sugar is potentially addictive and activates endorphins in the brain in a way similar to heroin-I could hardly put down my Jaffa Cake long enough to come and ask this question. Does he not agree that it is important to look at research that shows that scientists have made rats sugar-addicted in just one month by feeding them sugared drinks? Will he revisit the nutritional standards for schools, because 62% of British schools currently do not have tough nutritional guidelines that would reduce sugar consumption among British children?

Earl Howe: My Lords, I am aware of that research, which my department is looking at very carefully, but I should put a health warning on it in that we do not yet accept the conclusion that sugar is addictive, although clearly in the case of young children those who get into the habit of consuming sugar are likely to continue doing so, so the noble Baroness is quite right that it is a risk factor in the young. The advice from the School Food Trust is of course to have a healthy diet at school. Many schools are adhering to that, and we are doing our best to promote that with our colleagues in the Department for Education.

The Countess of Mar: My Lords, the Minister mentioned unexpected consequences. Does he agree that people who are afraid of eating too much sugar because they might get fat will turn to sugar substitutes such as aspartame? Is he aware that aspartame contains 10% methanol, which, uniquely in the human body, is turned into formaldehyde and has its own neurological hazards? Would he recommend having sugar or sweeteners?

Earl Howe: My Lords, the Department of Health recognises that artificially sweetened or low-calorie drinks can play a role in helping people to reduce the number of calories they consume and offer a wide choice of low-calorie options. As for the safety of artificial sweeteners, all food additives, including sweeteners, are thoroughly tested for safety prior to approval and are subject to review by independent expert bodies. The Food Standards Agency considers that all approved sweeteners can be safely consumed at current permitted levels.

Baroness Trumpington: My Lords, this morning I was in a Waitrose and I looked at all the packets of cereals. Each one had a different sugar-based flavour, such as chocolate and apricot, and all the cereals contained sugar of different kinds. What is the Minister's reaction to that?

Earl Howe: My noble friend draws attention to an area of concern. Cereals of that kind are particularly attractive to children, although I would say that the good news here is that added sugar consumption among children has fallen during the past few years, which is perhaps a sign that the messages on the levels of sugar that children can safely consume is getting through to parents.

Lord Collins of Highbury: My Lords, I am grateful to the noble Earl for reminding us that a small reduction in weight maintained over time can reduce the risk of developing type 2 diabetes. I must admit that I wish that I knew that when I stopped smoking and piled on the weight. As a consequence, I am type 2 diabetic. It is true that small improvements in eating and drinking habits can reduce the risk. I ask the noble Earl, as I asked him last November, whether the Government will take this threat seriously and undertake to lead a major awareness programme about what to do to avoid type 2 diabetes.

Earl Howe: My Lords, there is a great deal going on in this extremely important area. I am grateful to the noble Lord for emphasising its importance. There is a ring-fenced budget for public health, and weight gain is one of the key indicators in the public health outcomes framework. There is the Change for Life campaign, which has, I think, gained enormous credibility among the public and professionals. We are engaging with the food industry through the public health responsibility deal to take forward the calorie reduction pledge. There are NHS health check programmes, which are being rolled out throughout the country, and at GP level there are the nine tests which GPs are advised to undertake with diabetic patients. The rate at which those tests are being done has gone up very encouragingly over the past few years.

Club and Institute Union: 150th Anniversary
	 — 
	Question

Lord Bilston: To ask Her Majesty's Government what plans they have to mark the 150th anniversary of the Club and Institute Union.

Baroness Hanham: My Lords, the Government would, first of all, like to congratulate the Club and Institute Union on reaching its 150th anniversary. The Government themselves have no plans to commemorate this anniversary since these are private institutions. However, we are aware that the All-Party Group for Non-Profit Making Members' Clubs, of which I believe the noble Lord is the secretary, has organised a commemorative event in Parliament on 11 July-tomorrow.

Lord Bilston: My Lords, I thank the Minister for that very positive reply. My heart fills with pride in appreciation of the vital and outstanding service that the Club and Institute Union has contributed to the cultural, social, educational and creative life of working class communities throughout the length and breadth of Great Britain over these past 150 years, which we are joyfully celebrating this week. Will the Minister kindly draw the attention of all government departments to the present burdens borne by the CIU-and not just the CIU, but also by Conservative, Labour, Liberal and British Legion clubs and many others-through years of pernicious legislation, and offer them some respite in these very harsh and difficult economic and social times?

Baroness Hanham: My Lords, I am very aware of the traditional nature of the clubs involved-the work they have done for so long, the people they represent, those to whom they give a good time and those whom they support. I will of course draw the attention of other departments to the nature of these organisations as requested by the noble Lord.

Lord Davies of Coity: My Lords, I wonder if the Minister can advise the House as to the number of clubs that have been forced to close in recent years as a result of government legislation?

Baroness Hanham: My Lords, we are talking about private clubs, and I have no idea why private clubs close. The Government are doing their best to support small businesses such as clubs, and have already granted them rate relief from £6,000 to £12,000 until March 2013. They are also ensuring that rural rate relief is available to public houses in particular, not all of which will have the club connections that the noble Lord refers to. The Government are doing what they can to support small business, particularly in the country, and they do not have a role in the closure of the clubs that he mentioned.

Lord Lexden: My Lords, does my noble friend agree that a number of clubs affiliated to the CIU contributed significantly in their early days to advancing political education throughout our country? Thanks in part to them, by the 1880s 100 towns had their own local House of Commons modelled on Westminster. Of those for which information survives, 33 had Liberal majorities and 26 had Tory majorities-33 Liberal against 26 Tory. I offer this on a day when my Liberal coalition colleagues might need a little consolation.

Baroness Hanham: My Lords, I strongly suspect that an answer is not required from the Front Bench.

Lord Grocott: My Lords, it is very welcome that the Government have acknowledged this 150th anniversary and the tremendous work that has been done during that period-particularly the work, although he is too modest to point it out, done by my very good noble friend Lord Bilston both in his own area of Bilston, in Wolverhampton, and here in Parliament in the all-party group. The only thing on which I would like any elaboration is the Minister's referral to this, I think, as a small business initiative. This is much more than small businesses. As has already been pointed out from her own Benches, these clubs have provided much broader services to their communities over the years. In fact, I would almost suggest to the Minister that she might place them in the category of government business headed "the big society", because we invented it long before anyone else did.

Baroness Hanham: My Lords, it is always dangerous to align anything with anything. I was trying to suggest that there was an opportunity for small business rate relief for these clubs-I drew attention to that. If I inadvertently said that they were small businesses, clearly that is not what they are; they are private clubs that do a good job for their members and have all the attributes that noble Lords have suggested. They have a valuable history and have seen a lot of people through some very difficult times as well as through some enjoyable times. As my noble friend behind me suggested, they also have some political involvement.

Prisons: Mothers and Infants
	 — 
	Question

Baroness Benjamin: To ask Her Majesty's Government what action they have taken to reduce the number of mothers imprisoned with their infants in England and Wales.

Baroness Northover: My Lords, sentencing in individual cases is a matter for the independent judiciary. Where a judge or a magistrate sentences a mother to custody, mother and baby units are made available to ensure that the best interests of the child are met, enabling the mother and child relationship to develop and to safeguard and promote the child's welfare. The number of women imprisoned with babies has remained broadly stable at around 50 over the past two years.

Baroness Benjamin: I thank my noble friend for that answer. Essential, emotional attachments are made between mother and baby during the first 18 months of a child's life, but imprisoned mothers with babies are often denied these necessary bonding opportunities because of the restricted environments they are placed in-even within the mother and baby units, which are often far away from the women's homes. Will the Government encourage the courts to consider the welfare of the baby before sentencing the mothers to custody and can we please have more, smaller, baby-friendly secure community units as an alternative?

Baroness Northover: My Lords, the Government are fully committed to reducing the number of women in custody, and that is already happening. Recent sentencing changes should help that further. If a woman or a man is a sole or primary carer, that should be considered as a mitigating factor in sentencing. Recent guidelines from the Sentencing Guidelines Council have reiterated this. There are seven small mother and baby units, the largest having 13 spaces, which support the development of mother and baby relationships. In deciding whether a mother and baby should be referred to one of these units, the interest of the child is paramount.

The Lord Bishop of Chester: My Lords, bishops see the inside of prisons rather more than most Members of your Lordships' House do. There is no more depressing aspect of a visit than to go to one of these mother and baby units. Can the Minister tell the House what proportion of these mothers are there for drug-related offences, when they are often not the prime movers in the trafficking?

Baroness Northover: The right reverend Prelate is right that prisons of any description can be very depressing places, as is seeing the situation of people within them. However, I have visited the mother and baby unit within Holloway prison. If mothers are sentenced to prison, they need to be extremely well supported, and I thought that the support being given in that mother and baby unit was very good. Within the prison, too, the support in terms of mental health, tackling drug addiction and other problems was being approached. It is extremely important that we do what we can to try to keep women out of custody. The legal changes made in the last Bill help to move us in that direction and that is one of our aims, because the right reverend Prelate is right that many people in this situation are themselves very vulnerable.

Baroness Corston: My Lords, given that most of these women are imprisoned for offences for which no male would be locked up, and given that, as the Minister said, there are seven mother and baby units in this country, would she acknowledge that that small number indicates that, for many of these women, if they have other children, they have to make the stark choice between applying for a place at a unit and keeping their baby but losing contact with their other children, or giving the baby up at a time when they are probably breastfeeding, so that they can remain in contact with their other children? Finally, will she acknowledge that there is overwhelming public support in this country for the proposition that women who commit non-violent offences who are mothers of small children should not be locked up at all?

Baroness Northover: I pay tribute to the noble Baroness for all her work in this area, which shifted the last Labour Government enormously in terms of what they did. We are building on that work. As I mentioned, one of the changes in the last justice Bill, LASPO, says, for example, that if it is unlikely that somebody is going to have a custodial sentence, they are not remanded in prison. That should help women who find themselves in that situation. Similarly, there has been a turning around of what happens if somebody breaches their community order. It was mandatory before that that should be escalated, which often meant that women in that circumstance ended up in prison. What is suggested now is that there should be a fine-and that, too, should divert women away from prison. There are a number of ways in which it is extremely important to approach this to try to ensure that women are kept out of prison when that is appropriate, but to ensure that they are well supported if they are in prison.

Baroness Symons of Vernham Dean: My Lords, can the Minister tell us at what age babies or very young children leave the mother and baby unit, and what arrangements are made to lessen the emotional trauma of a very young child being taken out of its mother's care on a daily basis? What arrangements are put into place to lessen the anxiety for the mother and the child?

Baroness Northover: Babies stay in the mother and baby unit until about the age of 18 months, so that can vary. It is therefore part of the way that the best needs of the baby are assessed to look at the length of the mother's sentence and whether in due course it is necessary to remove a baby because the mother's sentence is longer than the baby unit would enable them to stay together. Looking at the best interests of the baby is what underpins whether a mother and baby are referred to a mother and baby unit.

Lord Dholakia: My Lords, could my noble friend the Minister look at the international dimension of good practice, and could she invite the Children's Commissioner to look at this particular issue, with the sole objective that the welfare of the child is of paramount importance?

Baroness Northover: The Ministry of Justice is always interested in international practice. Recently the Howard League sent through some interesting information about the situation in South Africa. Noting that, I would point out that the current policy in relation to mother and baby units is absolutely based on the needs of the child being paramount. It is surely right that that is the case.

Governor of the Bank of England
	 — 
	Question

Lord Davidson of Glen Clova: To ask Her Majesty's Government, in the light of current concerns over the supervision of financial markets, what qualities are required in the successor to the current Governor of the Bank of England.

Lord Sassoon: My Lords, the Financial Services Bill makes provision to strengthen the UK's financial regulatory structure. The proposals will establish a new system of focused financial services regulation with the Bank of England at its heart. The current governor still has almost a year of his term to serve. My right honourable friend the Chancellor of the Exchequer has confirmed that the process of appointing a successor will not begin before the autumn. The new governor's qualities will of course reflect the Bank's new mandate.

Lord Davidson of Glen Clova: I thank the Minister for his Answer. It is essential that the next governor is a man of unimpeachable integrity, or a woman of unimpeachable integrity-certainly a person-who in all jurisdictions will command respect through their understanding of financial markets. Surely they will be required to be a person who has an intimate understanding of markets. The UK's future problems are likely to have a substantial international context. Does the Minister agree that the next governor must have a character and position that enable him to have a strong, effective relationship with central bank governors in other jurisdictions, particularly the Middle East, China and the United States? If Her Majesty's Treasury agrees with this, will it ensure that the next governor has these qualities?

Lord Sassoon: First, my Lords, for the clarity of the noble and learned Lord, the Chancellor has said:
	"When the time comes, the best person for the job will be appointed, whoever she or he may be",
	so he is very clear on that point. The noble and learned Lord goes on to make an interesting suggestion about one of the possible dimensions of the job, and I listen carefully to what he has to say on that point.

Lord Barnett: My Lords, under the Financial Services Bill that we have been debating, the new governor would need to be chair of, or to manage, the FPC, the FCA, the PRA and the Court of the Bank of England. That means, of course, the threats to financial stability, the removal or reduction of risks, enhancing the resilience of the financial system, educating the public and, above all, co-operating with the Treasury, which is quite a job as I am not sure it knows what all these things are. Does the Minister think that a man or woman exists who is capable of doing that job, or is he thinking of applying himself?

Lord Sassoon: My Lords, the Bank of England is going to have a very large new mandate, and the points that the noble Lord makes are rather important to this. Whether on the MPC, the FPC or the PRA, the governor is going to be very well supported, not only by deputy governors but by a range of internal and external experts. Just for clarification, the governor no longer chairs the court; that is chaired by a non-executive chairman. I do not know how it was in the noble Lord's day, but I am sure that co-operation with the Treasury is going to be the least of the new governor's difficulties.

Baroness Kramer: My Lords, I regret that in the Financial Services Bill we have not established a mechanism whereby Parliament can have a say in confirming the new superwoman or superman to take up this role. Will the Minister at least give us an assurance that the Chancellor will look for someone who breaks away from the mould of groupthink, which contributed so much to the financial crisis in 2008, and who, while having all the necessary financial and economic background, perhaps comes with some other, different experience so that we can burst the bubble that has been a real problem in financial regulation?

Lord Sassoon: To be clear, Parliament will have a role in that the Treasury Committee will, I am sure, hold a pre-commencement hearing if it so wishes. Again, as I said to the noble and learned Lord, I take on board the suggestions that are coming this afternoon.

Lord Kinnock: My Lords, does the Minister agree that the qualities required will include patience?

Lord Sassoon: Yes, my Lords, I am sure they will.

Lord Tomlinson: My Lords, does the Minister agree that the next Governor of the Bank of England, besides having the proven competence that has clearly grabbed the Minister's attention, should also be a person of honour and integrity-the sort of person who, should he or she wrongly impugn anyone's integrity, would at least have the grace and courage to stand up, admit it and apologise?

Lord Sassoon: My Lords, if that is an oblique reference to my right honourable friend the Chancellor, I do not believe that an apology is needed. I agree with the noble Lord, Lord Tomlinson, that honour and integrity will be among the qualities needed by a future governor.

Lord Cormack: My Lords, if we are looking for such a paragon, should not the runner-up in the Canterbury stakes be considered?

Lord Sassoon: My Lords, I am not going to be drawn into a discussion of particular candidates, but the Bishops' Bench is making some very notable contributions to the deliberations on the Financial Services Bill.

Lord Davies of Stamford: My Lords, Mervyn King has been a very distinguished governor and has made a major contribution to the science and art of inflation targeting, which is internationally recognised. Is it not desirable that in choosing his successor we choose someone not only of absolute integrity with great familiarity of the financial markets, and not just in the British amateur tradition, but someone who is a genuine monetary economist, is internationally respected in the field, and can hold his or her head high and deal on equal terms with Mario Draghi and Ben Bernanke, who are certainly in that category?

Lord Sassoon: My Lords, I am sure that whoever is selected and whoever is recommended by the Chancellor and the Prime Minister to the Queen, whose appointment it is, will be of the very highest quality.

Equality Act 2010 (Age Exceptions) Order 2012
	 — 
	Motion to Refer to Grand Committee

Moved by Baroness Verma
	That the draft order be referred to a Grand Committee.
	Motion agreed.

Assets of Community Value (England) Regulations 2012
	 — 
	Motion to Refer to Grand Committee

Moved by Baroness Hanham
	That the draft regulations be referred to a Grand Committee.
	Motion agreed.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2012
	 — 
	Motion to Refer to Grand Committee

Moved by Lord Sassoon
	That the draft order be referred to a Grand Committee.
	Motion agreed.

Financial Services Bill

Financial Services Bill 
	4th Report from the Delegated Powers Committee

Committee (3rd Day)

Relevant document: 4th Report from the Delegated Powers Committee.
	Clause 3 : Financial Stability Strategy and Financial Policy Committee
	Amendment 46
	 Moved by Baroness Hayter of Kentish Town
	46: Clause 3, page 6, line 7, at end insert "provided that such a direction does not conflict with the FCA's consumer protection objective"

Baroness Hayter of Kentish Town: My Lords, Amendment 46 stands in my name and in the name of my noble friend Lord Eatwell. I shall speak also to Amendments 49, 52 and 67, which similarly stand in our names.
	These amendments seek to ensure that when the Financial Policy Committee gives directions to the Financial Conduct Authority in the interests of financial stability, it does so in ways that do not conflict with the FCA's duty to uphold consumer protection, that the Financial Policy Committee must take note of any representations from the consumer panel, and that where such directions, or indeed recommendations, are given, the FCA reports back to the Financial Services Consumer Panel as well as to the FPC.
	If we did not know before last week about the detriment that can affect consumers where their interests are ignored, we must surely know now. Consumer trust in this industry has taken a body blow, and it is really important that regulators never for a moment forget the end-user-the saver, the borrower, the lender. The Financial Policy Committee is clearly not a consumer-focused body. It will take decisions that have a huge impact on consumers but it will not have the expertise to do it well. The FCA's consumer panel is meant to represent the consumer interest. Without these amendments, we are allowing the panel to be ignored. We know what happens when the interests of clients are not placed centre stage.
	I argued at Second Reading that our regulation must be consumer focused or it will never do the job. These amendments would help to achieve that. The FPC will take decisions that impact on consumers. The Minister knows this. In Committee last week, he said that a direction or recommendation from the FPC,
	"could have a serious negative implication for the safety and soundness of individual firms or for consumers".
	He went on to say:
	"The FPC will not necessarily be aware of those negative implications on ... consumers".-[Official Report, 3/7/12; col. 675.]
	Quite so. There will be no consumer input into or consumer voice in the FPC.
	The Minister seemed to think that the FCA would be aware of possible impacts on consumers, but the chief executive officer of the Financial Conduct Authority is from the industry. He knows the industry and understands its interests and perspective, but that is not the same as voicing consumer protection issues. Let us consider a possible FPC direction, such as a cap on loan-to-value at 90%. That would trap an existing 95% loan-to-value mortgage customer with a particular bank. That is hardly consumer choice or competition. Just this time last week, at the annual public meeting of the Financial Services Authority, Adam Phillips, chair of the Financial Services Consumer Panel, said:
	"We remain concerned about the predicament facing so called 'mortgage prisoners'-those with interest only mortgages and those trapped on the standard variable rate because they are unable to meet the affordability criteria-and have urged the FSA to act quickly to mitigate this situation. We also hope that the lessons learned in this process will be considered by the Financial Policy Committee when developing its strategy for dealing with asset bubbles".
	But who will be there to bring such lessons to the FPC if the consumer panel has no access? Similarly, any increased capital requirements decided by the FPC could be passed on to consumers in an opaque way by increasing rates and/or fees. Sometimes, I can almost hear some people in the City saying to us consumers, "Now don't you worry your pretty little heads about this. It's really just for us big boys". Those big boys are exactly the people who have created so many problems for savers and investors.
	When the FPC is considering big issues, how will the voice of the consumer be heard against the grain of the industry's interests? Perhaps "grain" is not the correct term. We have learnt this morning that, at the cost of £90 million, there are some 800 lobbyists-one for each Member of your Lordships' House-working to ensure that the financial industry's case is heard at the highest echelons, be they the Bank, the Treasury, this House or another place. Is it any surprise that the still, small voice of the user-whose savings fund this industry, we should remember-are rarely accorded much precedence?
	By contrast, these modest amendments are to ensure that not for one moment should the overall regulatory architecture ignore consumer protection. They hard-wire the consumer panel into consideration of the FPC's biggest weapon-direction. Do we really need reminding that unless consumer confidence and trust return, unless the interests of consumers are centre-stage, no amount of shifting deckchairs on the regulatory deck will make a blind bit of difference? These modest amendments will simply help to keep consumers in every decision-maker's eye. I beg to move.

Lord Peston: My Lords, I support my noble friend's amendments. I was particularly struck by her parting remark, which concerns a point that has bothered me a great deal during our deliberations up to now. The voices of the financial institutions are being heard loudly and at great length in your Lordships' House on this matter. I do not criticise them for that-they have interests that they wish to see served-but we have interests of a different kind; namely, that we must be dispassionate. In particular, therefore, if the voices of consumers-which means ordinary people-are not heard at all, then something has seriously gone wrong with why we are bothering to try to reform the financial system anyway. If I were asked why we would take the Adam Smith view of everything, I would say that, ultimately, the whole economy exists for the sake of the consumer, and not for the sake of businesses. Businesses exist for the sake of the consumer. To have any doubt of the absolute necessity that the consumer's voice is heard is to be mistaken. I therefore rise strongly to say that that voice should be heard mandatorily, and not if it just suits the body that takes the decisions.

Lord De Mauley: My Lords, this group of amendments, which go to the issue of consumer protection, deals with the Financial Policy Committee's use of its powers of direction and recommendation in relation to the Financial Conduct Authority. These powers are the key means by which the FPC will seek to implement macroprudential policy. I should say at the outset that we wholeheartedly agree with the noble Baroness about the importance of consumer protection, which indeed is why we are creating a dedicated consumer protection regulator in the FCA.
	In the case of directions, noble Lords will be aware that the scope of the FPC's power will be determined by the Treasury. Under new Sections 9G and 9K of the Bank of England Act 1998, as set out in Clause 3 of this Bill, the FPC will be able to direct the PRA, the FCA, or both, to implement "macro-prudential measures" that have been prescribed by the Treasury by order, subject to parliamentary scrutiny.
	Amendment 46 seeks to limit the FPC's ability to make such a direction if it would conflict with the FCA's consumer protection objective. I understand the general motivation behind this amendment. Indeed, it would not be appropriate for the FPC to issue directions to the regulators without regard for whether they conflict with the statutory objectives of those regulators.
	However, let me assure noble Lords that safeguards are built into the Bill to prevent this. Specifically, new Section 9E, as set out in Clause 3 of this Bill, provides that the FPC must, in exercising its functions in relation to the FCA, seek to avoid doing so in a way that would prejudice the advancement of the FCA's operational objectives, including consumer protection.
	This provision is contingent on the FPC being able to achieve its own objective for financial stability. That is right, given that financial stability must necessarily take precedence if the new regulatory system is to address the flaws revealed by the crisis. However, this places a clear obligation on the FPC to take into consideration the FCA's objectives before acting, and, in subsection (2), to find a way to minimise any possible conflict. In addition, of course, the presence of the chief executive of the FCA as a voting member of the FPC means that the views of the FCA-and therefore of consumers-will be represented and taken into account.
	More generally, I suggest that such conflicts are unlikely to arise often. In practice, it is likely that most of the FPC's directions will be directed at the PRA, so there will not be significant potential for conflict to arise between stability and consumer protection. It is also worth saying that what really is in the interest of consumers is financial stability. If the FPC were to be given a tool, implemented through the FCA, the Treasury would take care to design it in such a way as to minimise the potential for conflict between financial stability and consumer protection.
	Amendments 49 and 52 deal with the role of the Financial Services Consumer Panel in relation to directions made by the FPC to the FCA. Amendment 49 would require the FPC to take account of representations from the panel before issuing a direction to the FCA. The FCA will already be required to consider representations from the consumer panel with regard to its general policies and their compliance with its objectives under new Section 1R of FSMA in Clause 5 of this Bill. This duty will continue to apply when the FCA is acting under direction from the FPC, so the panel will have ample opportunity to make its views known.
	Amendment 52, which would require FCA-specific directions to be reported to the consumer panel, is rendered unnecessary by the Bill's general provisions for openness. For example, under new Section 9J, to be inserted in the Bank of England Act 1998 under Clause 3, directions must be reported to the Treasury and, where appropriate, laid before Parliament. Under new Section 9R, the record of FPC meetings must specify decisions taken, including the decision to give a direction or to make a recommendation.
	Likewise, the inclusion of recommendations within new Section 9R means that Amendment 67 is not necessary either. The amendment would require recommendations made by the FPC to the FCA to be reported to the consumer panel, but the general reporting requirement is already in place under new Section 9R. Even without these provisions, we would expect the FCA to keep the consumer panel-indeed all the statutory panels-aware of relevant decisions made by the FPC. However, the provisions that are already in the Bill provide a guarantee of openness. I therefore hope that the noble Baroness will feel able to withdraw her amendment.

Lord Barnett: Before my noble friend replies, perhaps I may add my support. The Minister's reply enhances my concern about the depth of work being given to the Bank of England under this Bill. The Minister referred to the FPC, the FCA, the PRA and the MPC. I suggest that the Government look at all the initials that they are using in these clauses. They are somewhat confusing and might even confuse the new Government. The Minister's reply briefly exposes the extent and breadth of this Bill. The reply to one modest group of amendments is, to say the least, somewhat comprehensive. I am sure that it might not be easily understood by many Members, let alone by people outside this House.
	We are told now that consumer protection is to be decided by the Treasury and not by the Bank of England, which is being given powers under all those initials. It will be decided by the Treasury. Has it nothing else to do? Will the Bank of England have nothing else to do? The whole Bill needs to be looked at afresh, and I would not be at all surprised if, before we get to the end of it, it is not all withdrawn and started again.

Lord Peston: Just to supplement my noble friend's intervention, am I right that the Minister is trying to tell us in a nutshell that there is no problem whatever with consumer protection in connection with these amendments and that everything will be all right, as Dr Pangloss might put it?

Lord De Mauley: My Lords, I am saying that the concerns to which the noble Baroness's amendments go are addressed as the Bill stands.

Baroness Hayter of Kentish Town: My Lords, I thank my noble friends Lord Peston and Lord Barnett, who between them have been teaching me economics for 40 years. It is very nice to have their support now. I also thank the Minister for his response. Unfortunately, he does not answer the major question. He says that they will mitigate problems and any decisions. Under this amendment, we were trying to say that consumers should influence those decisions. We keep putting things right when they have gone wrong and we want a voice in those decisions. I do not think that those questions have been answered by the noble Lord; nor has he taken up the point that the chief executive of the FCA, who does not come from the consumer movement, does not have the feel of it. That is fine; it is a different job. I think that we will want to return to this matter, because clearly it is key to the Bill. For the moment, I beg leave to withdraw the amendment.
	Amendment 46 withdrawn.
	Amendment 47 not moved.
	Amendment 47A
	 Moved by Lord Flight
	47A: Clause 3, page 6, line 16, at end insert-
	"( ) An order under subsection (2) may only exclude or modify procedural requirements under FSMA 2000 where the Committee believe that this is necessary due to the urgency of the situation, and where this occurs the order must include an explanation of the reasons for excluding or modifying the procedural requirements of FSMA 2000."

Lord Flight: My Lords, this amendment is not of huge importance but the point is this: the power in the new Section 9G(2) enables the FPC to issue directions which will require the PRA or FCA to exclude or modify existing procedural requirements under FiSMA, and this is likely to include the requirements on the PRA and FCA to consult on new rules. While I accept that under certain emergency circumstances it may be necessary and correct so to do, this should clearly not be a common occurrence, and this amendment seeks to limit the power to dispense with or modify these procedures by requiring a subsequent explanation and justification if they are so modified.

Lord Peston: My Lords, I was hoping that the noble Lord, Lord Flight, would speak at much greater length on this matter, because I find this whole section of the Bill very difficult to understand. The notes on clauses-I do not know whether noble Lords have bothered to take a copy-are about the worst I have seen in my life. They simply repeat the clauses, with no explanation whatever. Therefore, I would like to ask, via the Minister-I am not sure how one does this in Committee -whether the central point here is to deal with an emergency where the emergency is such that you cannot wait? The noble Lord, Lord Flight, has not given us an example. I have had great difficulty thinking of one. Perhaps he could tell me later what particular sort of emergency he has in mind. The great stock market crash of 1929 is a relevant event from the point of view of financial instability. I am sure the noble Lord, Lord Flight, knows that Irving Fisher, then the world's greatest economist, said at the time that there was no danger whatever of the stock market crashing, it would go on rising considerably.
	If that situation repeats itself, our intervention would be too late. That is the problem. The real point is, technically, whether we could ever be early enough. Therefore, I just want to make sure that I fully understand what the noble Lord, Lord Flight, is saying, when he recommends this amendment, which otherwise sounds fairly sensible to me.

Lord Stewartby: My Lords, I would like to add a word to what the noble Lord, Lord Peston, has said, in particular to ask my noble friend Lord Flight about the frequency with which this situation is likely to happen. Would it be an exceptionally rare event, because that may affect the way in which one approaches it?

Lord Flight: My Lords, I was simply making the point that if this power is used, and as a check against its improper use, there should be the requirement to explain why.

Lord Sassoon: My Lords, I will see if I can help a bit here. Amendment 47A seeks to prohibit the modification or exclusion of procedural requirements-that is, the requirement to consult-except for reasons of urgency. The reasons for the exclusion or the modification would also need to be included in the order. I should briefly explain why the Treasury has the ability to switch off or modify procedural requirements-the requirement to consult-which apply to action taken by the PRA and FCA on a tool-by-tool basis.
	As the Government made clear in their February 2011 consultation document, in the case of some macroprudential tools, directions from the FPC will be very specific, requiring no discretion at all on the part of the regulator to implement them. Noble Lords asked for examples. In these cases-for instance, where the FPC is simply changing the level of a particular lever-consultation or cost-benefit analysis undertaken by the regulator would have little value and would introduce unnecessary delay into the process.
	The Government believe that in these cases the FPC's policy statement for the tool and its explanation of how the action is compatible with its objectives will provide much more valuable information about the action and its impact than any consultation by the regulators. However, I reassure the Committee that the Government do not expect to modify or exclude procedural requirements for most tools.
	The Government will in due course publish a consultation document with proposals for the composition of the FPC's initial toolkit, which will set out whether procedural requirements will be amended for any tools. In that case, there will be complete transparency regarding whether there has been any proposal by the Government to cut out the normal full consultation processes, and, if so, the reason will be clear. On the other hand, taking the question of urgent cases, if a delay in implementing an FPC direction could pose a risk to financial stability, both the PRA and the FCA already have, under their existing powers, the ability to waive consultation requirements in order to take action urgently.
	Therefore, I hope I can assure my noble friend that on the one hand it will not be, in his words, at all common for consultation not to take place and it will be transparently set out; on the other hand, the power in new Section 9H(2) will not be needed in cases of urgency because that is already covered. On the basis of that explanation, I ask my noble friend to withdraw his amendment.

Lord Flight: My Lords, I think I am happy that the fundamental point is covered, and what the Minister has just stated effectively puts that on the record. I beg leave to withdraw the amendment.
	Amendment 47A withdrawn.
	Amendments 48 to 53 not moved.
	House resumed.

Future of Specialist Disability Employment
	 — 
	Statement

Lord Freud: My Lords, with the leave of the House, I will now repeat a Statement made in the House of Commons by my honourable friend the Parliamentary Under-Secretary of State for Work and Pensions. The Statement is as follows:
	"I would like to make a Statement on Remploy and I am sure honourable Members will agree that Remploy employees must be first and foremost in our minds today. That is why they have been notified first of the decisions of the Remploy board in advance of this Statement today.
	In her independent review published last year, disability expert Liz Sayce made it clear that segregated employment is not consistent with equality for disabled people. The Sayce review sets out that money should support individual disabled people, not segregated institutions, as well as recommending that Remploy factories should be set free from government control.
	It cannot be right that the Government continue to subsidise segregated employment, which can lead to the isolation of disabled people. This is no alternative to promoting and supporting disabled people in mainstream jobs, the same as everyone else.
	I have been absolutely clear that the £320 million budget for disability employment services has been protected, but by spending it more effectively we can get thousands more disabled people into work. It is important that this money is spent in a way that is consistent with what disabled people want, consistent with this Government's commitment to disability equality, and consistent with helping more disabled people live an independent life.
	When Labour put in place the Remploy modernisation plan in 2008, it started a process with £555 million to put factories on to a proper financial footing. It closed 29 factories as part of this process. What is clear is that the performance targets it set were not realistic, the reduction in costs could not be achieved and the modernisation plan has failed. In 2010-11, factories made almost £70 million of losses-money that could have been used to support thousands more disabled people into work. That is why the Government took the decision to implement Liz Sayce's recommendations in March to stop funding Remploy factories that have been losing millions of pounds, year after year, but committed to doing everything possible to minimise the number of redundancies.
	Today I can inform the House that the Remploy board has considered in detail 65 proposals to take factories out of government control as part of a commercial process. These proposals have been scrutinised by a panel, independent of Remploy, established by the department. The Remploy board and the Government have done all we can to support bids and safeguard jobs. This includes a wage subsidy for disabled members of staff totalling £6,400 and professional advice and support worth up to £10,000 for employee-led bids.
	On this basis, nine sites have had business plans accepted and will now move forward to the "best and final offer" stage, where detailed bids will be considered. Back in 2008, when the right honourable Member for Hodge Hill, then Chief Secretary to the Treasury, started this modernisation process and closed 29 factories, there was no such offer. No factories were given the opportunity to continue outside of government control. Remploy is hopeful that these negotiations may lead to the transfer of business and retention of jobs. At the current time, this does mean that 27 Remploy sites will no longer be operating. Details of these sites will be placed in the Library of the House. Remploy employees have been informed of the board's decision this afternoon. The Remploy board will now move into a period of individual consultation with employees.
	Undoubtedly, for those employees who have been told that their factories are closing, this is difficult news. But let me make one point absolutely clear. We are doing everything we can to ensure that Remploy workers who are affected will receive a comprehensive package of support and guidance to make the transition from government-funded sheltered employment into mainstream jobs.
	We have put in place £8 million to guarantee tailored support for every single disabled person affected for up to 18 months, including a personal case worker to help individuals with their future choices, as well as access to a personal budget for additional support. We are using the expertise of Remploy Employment Services, which, despite difficult economic times over the last two years, has found jobs for 35,000 disabled and disadvantaged people, many with similar disabilities to those working in Remploy factories. We are working with the Employers Forum on Disability to offer targeted work opportunities for disabled people through the First Shot, including guaranteed interviews, job trials, work experience and training. We have set up a community support fund to provide grants to local voluntary sector and user-led organisations. We have protected the budget for specialist disability employment services of £320 million on average for every year of the spending review period, and we have added £15 million specifically to Access to Work. This means that 8,000 more disabled people will be able to be supported into work as a result of today's announcements.
	This is an ongoing process. Over the Summer Recess, I commit to keeping right honourable and honourable Members-and noble Lords-updated on the status of the business plans going through to the next stage. I will provide a further update on progress when the House of Commons returns in September. Our approach has been led by disabled people's organisations and disabled people themselves, many of whom have welcomed the move to end the pre-war practice of segregated employment. I believe that it should be welcomed by all sides of the House. By spending these protected government funds more effectively we can support thousands more disabled people in work. What is more, we can spend it in a way that fits the needs and aspirations of disabled people in the 21st century by promoting disability equality and supporting disabled people in leading full and independent lives".
	My Lords, that concludes the Statement.

Lord Collins of Highbury: My Lords, I hear what the Minister said about the worthy objective of ending what I used to call "sheltered employment" and moving towards more integrated employment, but the Government on this occasion have a duty as an employer to employees who are incredibly vulnerable. There are already 515,400 disabled workers out of work in the UK, as well as 1.9 million people who are not disabled looking for work. I fear that unless there is a U-turn by the Government on closing the Remploy factories, the 2,800 disabled employees will be put on the scrap heap and most of them will never work again.
	Quite simply, this is the wrong plan at the wrong time. To use another phrase: it is too fast and too deep. I am afraid that the Government have not understood all the implications of Liz Sayce's report. She understood the need for change, but in making that change she also understood the need to involve the employees and the people who work hard in Remploy in ensuring that they have the possibility of a future. The Government have ignored those recommendations-in particular, about the time and speed of the implementation of these changes.
	Why do the Government not honour the recommendations of Liz Sayce that they have chosen to ignore? Why do they not give factories six months to develop a business plan and two years before the subsidy is fully withdrawn? Why is there not a proper plan for transition that gives hope to people in work to remain in work? The viability of the Remploy factories could be decided not by a panel appointed by the department but by one that genuinely involves business and enterprise experts, as well as trade unions, rather than a simple unilateral action by the department. Will the Minister consider restarting the process on a proper basis that will enable businesses to examine whether they have a proper viable future? The public sector in each local authority area could be involved so that we can properly understand how government and local purchasing and employment policies impact on the viability of these factories.
	I welcome the commitment on Liz Sayce's report. The Government need to take a more flexible approach to transitional funding. Some of these factories-beyond those that the Minister has referred to-may need more time, particularly in areas with the highest unemployment. As we have heard today, some may need less. We are talking about the future of nearly 3,000 workers, and it is time for the Government to put the emphasis on ensuring the success of enterprises rather than saying there is no hope. I urge the Minister to look at this issue. It is not impossible to look at the tender process and to work in a way that meets the timeframe set down by Liz Sayce's review. It is simply not credible to suggest that potential bidders can be drawn up at such short notice. With the number that we have got in the report and in today's Statement, it is the clear position of the Opposition that not enough time has been given to the future prospects of these factories. I urge the Minister to consider these points and look at the whole picture and the impact of the proposals, which will mean thousands of workers having no future.

Lord Freud: Let me clarify one or two points on the numbers. The noble Lord, Lord Collins, talked about 2,800 workers on the scrap heap. The actual figure for the 27 sites we are talking about today is 1,422, of which 1,212 are the disabled group. There is a second process starting in the autumn with the next 18 factories. Those are the numbers that we are talking about.
	There were two questions on process. The length of time taken to get this through, end to end, is just over five and a half months from the commercial process launched by Remploy on 20 March, not including the time for locking down the approved bids. We have had 65 bids, which we have boiled down to bids for nine particular factories. There has been an open process during which we have also put in support to provide subsidy for the first two years of £6,400 in the first year, tapering down to £1,000 in the second year. We have tried to find ways for local groups to take part in this process, including finding funds to support employee-led bids. We have run a process which, within the context of commercial and legal obligation, has been transparent and open.
	It would not be appropriate or necessary to restart the process as the noble Lord said. We need to remove uncertainty and get on and finish this process in a satisfactory way so that people can work out their futures and take advantage of the very considerable package of support that we are putting behind getting people into alternative work.

Baroness Turner of Camden: My Lords, the Minister will not be surprised that I protest about the decisions which have been made in relation to Remploy, because I have raised the issue previously in debate in this House. He will be aware, of course, that the unions representing their members in Remploy have already protested very strongly against the decisions that have been taken.
	Although I understand what the Minister says about it being much better for workers to work with other people and not to be segregated, for many people segregated employment is the only work available and appropriate for them, particularly in the neighbourhoods in which they live. The local siting of Remploy factories is very important.
	I believe that the decision has been taken on a number of grounds, not necessarily in favour of the individual workers. There is an ideological attitude here on the part of the Government, who prefer privatisation to publicly owned enterprises. This was a publicly owned enterprise, a government enterprise, which everyone felt for many years was entirely successful. Many of the workers do not seem to have the organisation to effectively protest, although apparently they all belong to unions.
	There is also the question of the people who supervise these workers. Supervising disabled people often requires a great deal more skill than supervising in ordinary circumstances, and the people concerned are trained to deal with the disabled people for whom they are responsible.
	This is an entirely bad decision. I challenged it when I understood that it was in the process of consultation, and the unions protested at the time. I very much regret that the Government have taken this decision. As my noble friend on the Front Bench said, I hope there will be an opportunity for reconsideration, because there should be reconsideration. This is an important matter to the people who are directly involved, and I would like to protest on their behalf.

Lord Freud: My Lords, the first claim of the noble Baroness, Lady Turner, about segregated employment being the only employment available, is undermined somewhat by the fact that many of the jobs provided by Remploy Employment Services are in the areas where the factories are situated. Indeed it is having a great deal of success in getting jobs for disabled people in non-segregated employment-I think that the figure is roughly 12,000 jobs in those areas in the past few years. Clearly it is tough to get jobs for disabled people but Remploy Employment Services' remarkable performance shows how, with the right strategies and policies, one can be successful in getting people into non-segregated employment-which is, of course, our central strategy.
	I do not think that the noble Baroness really believes that this is an ideological public/private issue. It is about segregated and non-segregated employment and trying to spread money as efficiently as possible among the disabled community. When you compare an operation which lost £70 million in 2010-11 and cost £25,000 year-on-year for each worker supported with Access to Work's one-off investment, in many cases, of just under £3,000 to help people into non-segregated employment, you have to take these basic value-for-money considerations into account. I therefore commend this approach, which is being done with great concern and care for the individual workers involved, as a far better way of spending our budget for disabled people in work.

Baroness Browning: I share my noble friend's aspiration for getting the people currently with Remploy into integrated, paid employment. However, this proposal, by any other definition, is something of an experiment by putting so many people into the jobs market at this particular time. I think that he mentioned that each worker would have a mentor and assistance in getting back into work for 18 months. However, I wonder if he would agree that the House should receive a full report from him in 18 months' time telling us how many people are in contracted paid employment and how many are not. I must say to him that, in evaluating value for money, it is not only the public money that his department spends that would come into the equation. For those who might not be in paid employment at the end of the 18 months we would have to take into account not only the money that they had perhaps drawn in unemployment benefit but also a much wider expenditure which might include things such as mental health costs, physical health costs and costs associated with family breakdown. Those sorts of things-the therapeutic values and costs associated with this group in terms of their stability in the workplace-are not only important to them personally, although that is the most important part, but also involve a cost to the public purse. I really feel that the House should be able to access that information in 18 months so that we can make a judgment on just how successful this experiment has been.

Lord Freud: My Lords, the monitoring of what happened in the 2008-09 closures was not very good-I appreciate my noble friend's point, and I will look into the nature of the reporting back. There will be information and, if I may, I will specify the nature and timing of the feedback in a letter. I appreciate the point. On value for money, the assessment is that, over the current and the next spending review periods, this move will be worth just over £200 million. That is the context in which we are talking.

Viscount Tenby: My Lords, very briefly, perhaps I may press the Minister on what steps the Government are taking to overcome the reservations that employers might have in taking on disability labour.

Lord Freud: My Lords, we are undertaking quite a major exercise around Access to Work, and one of the areas that we are working on is exactly the noble Viscount's point about making employers feel comfortable. When Remploy began after the war, manufacturing was a major part of our economy. It is quite hard to be full steam in a steelworks, for instance, if you have a physical disability. As the economy has moved over to the service sector, it is very different, and the idea that many disabled people-certainly physically disabled people, around whom the concept of Remploy was developed-cannot do a whole stream of mainstream jobs is incongruous today. That is what we are talking about in the modernisation process. As I said, there is an issue about mental health. There, we are trying to push Access to Work so that people with mental health issues are pulled in and involved. We have a lot of work still to do about stigma. The Mind campaign has been extraordinary in starting to turn attitudes, and we need to get right behind it. That is a big and important issue to get employers behind.

Lord Addington: My Lords, I shall make a couple of points. First, the point made by my noble friend Lady Browning about reporting back is vital. This is probably the final public step of the process of looking at those with disabilities as individuals as opposed to people who are put away in blocs. I have always felt that the Remploy factories were on a time limit, and the previous Government accepted that. It is never the right time to make that change, and it is particularly unfortunate that it has to be done now, at a time of high unemployment. Can my noble friend assure me that in this process, those who are placing people outwith the specialist teams-normal job centres and secondary support services-are given greater briefing, particularly in the areas where people are being made unemployed? This may well be a useful test case for those who are providing better services overall. Unless we get that process right across the board, we will have merely pockets of good practice, not good practice overall.

Lord Freud: I thank my noble friend for that point. As I said, I will outline exactly how we will report back and timings. The more important point is the level of support we are providing in this case, where we have the personal help and support package, which is considerably tailored with consultation at every stage with, most interestingly, a specific caseworker per person, so people's individual requirements are analysed and taken into account, plus a fund to help people in. In this case, there is a lot of tailored support. One lesson may well be how important individual caseworkers are in helping people.

Lord Kirkwood of Kirkhope: I have been following the development of this policy area, and it is very difficult. I understand the comments of the noble Lord, Lord Collins, about timing, but I disagree with him. I also disagree with him on his interpretation of the Sayce report. Liz Sayce, who did sterling service to this House and others by writing her report, is looking much more long term and I think that her long-term principles are absolutely correct. We have to get the implementation right to look after the individuals who will be directly and, in some cases, starkly affected by this change. I want an assurance from my noble friend that there will be a comprehensive package of support for the individuals affected.
	In particular, as it affects these workers that we are all so concerned about this afternoon, transport access through the Access to Work programme is vital, because a lot of these factories and establishments are in very hard labour market areas. They may have to look further afield to find employment opportunities that are appropriate for their special circumstances.
	I am reassured to hear my noble friend mention the individual personalised package. I am also reassured by his undertaking to report back. It seems strange to me that we spend £320 million or £330 million on disability specialist employment services but £7,000 million on disability unemployment services. As the architect of the famous DEL-AME switch I will be looking to him in the longer term-and I hope that these short-term problems are sorted out-to use his ingenuity to try to lever some of the money out of disability unemployment support to employment support in the future.
	I support what is being suggested. I just hope we get the individual support packages correct.

Lord Freud: My Lords, I thank my noble friend, who understands this area as well as anyone in the House.
	This is not easy-it is a change in direction. However, it does reflect a world which is moving on, away from the physical disability area, into the mental health disability area. There is a lot of work to be done there. We need the money to be used very efficiently. In terms of efficiency, roughly half of the money spent on Access to Work is in achieving things that would not have happened otherwise. In other words, there is, in the jargon, not too much dead weight. Clearly one of the objectives of any Government must be to ramp up the level of efficiency and reduce the level of dead weight as we direct the money to help people who particularly need it. As noble Lords will know, that is something I am trying to push hard, in every direction that I possibly can.

Financial Services Bill

Financial Services Bill 
	4th Report from the Delegated Powers Committee

Committee (3rd Day) (Continued)

Amendment 54
	 Moved by Lord Eatwell
	54: Clause 3, page 7, line 40, after "Committee" insert "and the public"

Lord Eatwell: My Lords, I shall address Amendment 54, in my name and that of my noble friend Lady Hayter. I will also speak to Amendments 55, 57, 58 and 61. I apologise to the Committee if there is some confusion over the grouping with respect to these amendments. We asked this morning for this amendment to be degrouped from the amendment tabled by the noble Lord, Lord Flight, which deals with something rather different.
	I will preface my remarks by saying that over the next several groups we will examine the exceptionalism of the Financial Policy Committee. This committee is an experiment, and it has powers transferred from persons who have the authority of election behind them and are part of the executive, to an administrative function. These powers are substantial: they manage the supply of credit, and possibly, if particular measures were handed over to the FPC, they will manage the demand for credit. Hence, it will have a major impact on the overall macroperformance of the economy.
	There is also the potential for the FPC to be in conflict with the Monetary Policy Committee-the MPC-which controls the price of credit. That contradiction could be a serious element in the overall operation and management of the economy. The exceptionalism of the FPC, in our view, requires exceptional scrutiny and consultation as this experiment unfolds. I call it an experiment because we do not as yet know how effective these administrative measures are going to be. We do not as yet know even what they will be in content, so a degree of extra scrutiny and consultation is required at every stage to ensure that major mistakes are not made and that we design effective procedures and secure public acceptance for the role of the Financial Policy Committee.
	Amendment 54 introduces a minor element, which has wider significance than might at first appear. It simply introduces the expression "and the public" into those who must be consulted with respect to the makings of an order. The public here is a term of art, meaning those who have a direct interest in this area. It would essentially involve the industry and perhaps a few specialist academics or others who have a particular interest in the field. Amendment 54 seeks, as does Amendment 55, to introduce the possibility of that wider consultation, which I believe is vital if this experiment-and it is an experiment-is to succeed.
	Amendment 57 simply adds to the requirements for consultation by providing a back-up. When there is some failure to consult, perhaps because of the urgency of a particular measure, that failure should be,
	"subject to scrutiny by the Treasury Select Committee",
	in a way which has been recognised in other parts of the Bill. Amendment 61 adds to the conditions associated with urgency that there should be a statement published within 10 days of an urgent measure on which consultation has not taken place. Those four amendments provide a wider framework of consultation for this experiment than is provided in the Bill. It seems to me that they are entirely unexceptional and would be widely welcomed throughout the financial services industry, and indeed the policy community.
	Amendment 58 is a little different and really should have been degrouped, but we feel we should not go too far in our enthusiasm for degrouping. Here we have a slightly different element that focuses, however, on the exceptionalism of the Financial Policy Committee because that committee has a particular responsibility for measures that are specific macroeconomic controls. I simply do not see how that responsibility can be in any way transferred to the FCA or the PRA, which do not have such a responsibility in their objectives or their specification of roles. This seems to be a major mistake in the drafting of the Bill. It is also unnecessary with respect to the directions by the FPC, since the ability of the FPC to authorise the exercise of discretion is covered in proposed new Section 9G(5). This part is therefore going too far, as the necessary role for the FPC is already covered.
	This is a dangerous amendment-no, it is a dangerous position, not a dangerous amendment. It is a very beneficial amendment, which would remove a potential danger in the sense that the provision, as drafted, takes these experimental powers which we are handing to the FPC and allows them to be generalised outwith that very special framework that we are creating in the Bill. I urge the Government to accept Amendment 58. All the powers that the committee needs are covered by proposed new Section 9G(5) and this position is entirely unnecessary.
	In dealing with the exceptionalism of the Financial Policy Committee, therefore, the amendments I am discussing in this group enhance the underpinning of consultation that will provide validity and acceptance to the powers of the FPC and remove what was perhaps an unwitting extension of those powers, which might undermine the entire project. I beg to move.

Lord Barnett: Apart from the slight slip, I agree with everything my noble friend said. Indeed, I would say that it is not the only major mistake in this Bill. There are lots of major mistakes; indeed, there is total confusion. My noble friend has referred to only part of it. The plain fact is that when he talked about the FCA or the FPC, I was not quite sure which one we were talking about. There is also the PRA, which I forgot to mention. The macroprudential is also very important. I do not know where it fits into all this and where the responsibility will lie. To say that it is confusing is to put it mildly. As I have said before, this Bill is a dog's breakfast-I think that is the phrase. This Joint Committee that is being set up-perhaps the noble Lord can tell us when-was supposed to deal with everything very quickly. However, we are rising in a couple of weeks' time, and if the Joint Committee is not set up soon it will be October before it is. Perhaps the noble Lord knows, because he knows everything about this Bill.
	The plain fact is that responsibility ultimately rests with the Treasury. On the previous group of amendments, we were told that the Treasury will issue another document. The one thing we are not short of on this Bill is documents. We have two huge volumes, one with the schedules and one with the clauses, plus Treasury amendments and all kinds of working papers. Frankly, if my noble friend is confused, anyone involved with this Bill is bound to be confused because it is totally confusing. I hope that the Minister will able to reply comprehensively about how the whole thing will work and where the responsibility lies. I assume that ultimately it will lie with the Treasury, not with the FCA or the PRA or whoever. Who else will be responsible for financial stability? It must be the Treasury. No doubt, the Minister will be able to tell us. I strongly support my noble friend.

Lord Peston: My Lords, first, I support my noble friend Lord Barnett in his remarks about this Joint Committee of both Houses, about which we had a great row last week and were even divided on. We would certainly like to know when it will be set up and when it will appear in detail in the business statement. Having said that, I have two or three questions.
	My noble friend is quite right to use the word "experiment", but I hope he will agree that the whole Bill is an experiment. We have not had anything like this placed before us in this form, certainly in my quarter of a century here. That does not mean that it is an experiment that should not take place, but it does mean that we must be immensely careful when it comes to implementation. In particular, the one thing that we do not want to do is what I am afraid all Governments do: look at the past and then repeat the errors of the past willy-nilly. This is not a party political point; it is part of the nature of our political system. We need to make absolutely certain that we do not repeat the errors of the past.
	One slight point which my noble friend knows I will disagree on is the phrase,
	"subject to scrutiny by the Treasury Select Committee".
	I would always want to add "and the Economic Affairs Committee of your Lordships' House", but again we have had that argument before, and the cliché "flogging dead horses" is not my stock in trade.
	What troubles me much more is that I cannot see how what is said in the Bill does not lead to clashes with the MPC and what it seeks to do. There is an enormous blurred area of who is responsible for what. After all, if one knows any monetary economics, one knows that the MPC's role is certainly to produce financial stability. That is the whole point of a correct monetary framework, yet there are these other bodies doing the same thing. I know that we went through this again last week and were told that the governor of the Bank-I add the now mandatory remark, "whoever he or she may be"-will be chairing both committees, but it is still a Herculean task for the governor to ensure that two different committees do not have a decision-making process that leads to conflict.
	My last question is due to my ignorance of parliamentary procedure. Could the Minister say a bit more about what the phrase "by order" means? Does it mean putting an order before both Houses that is not amendable by us, or not? Apart from that, as I say, my support is strong.

Baroness Noakes: I may be able to help the noble Lord, Lord Peston, with his last question. In two groups' time, we will be discussing precisely the nature of the procedure that will accompany these new tools. The noble Lord might like to wait until then.

Lord Sassoon: I am always grateful to my noble friend or anyone else who wants to take the heat on challenging questions. We will come back to the nature of orders.
	On the question of what the experiment is here, the experiment that has failed is that of creating the FSA, and we now need to go back to putting the Bank of England at the heart of matters, which is what this is all about. I rather preferred the noble Lord, Lord Eatwell, referring to a "project", which he did at the end of his speech, rather than an "experiment". It is indeed a major project.
	To dispose of the not entirely relevant question about the Joint Committee on banking ethics and standards, the procedural Motion to set up that committee will be before us very shortly. There is not much more that I can usefully add. I do not think it is directly relevant to these amendments, but I am sure that that Motion will come forward very soon.

Lord Peston: It is directly relevant because the Minister has argued constantly that these are times of crisis and that we need to act quickly. He keeps arguing that and blaming the previous Government for the crisis rather than his own Government's continued mistakes. It is therefore very relevant for us to know when this committee is going to be set up and who will be on it.

Lord Sassoon: I am sure that we will not have to wait for very long. I shall address what is more directly the subject of these amendments and the question about possible conflicts between the FPC and the MPC. While it is conceivable that the two committees might seemingly appear to be taking conflicting action, I do not actually believe that that is likely to be the case as each committee's actions will be designed to address very different aspects of the economy and the financial system. That said, there are mechanisms in place to ensure that conflict does not arise. The committees will share information and briefing in order to aid co-ordination, and the Bill makes provision for joint meetings of the two policy committees if at any time that is required. The Bank has also said that it agrees with the Treasury Committee's recommendation on this question and that the governor should consult the chairman of court if a conflict arises. It is unlikely, but the Bill makes provision through joint meetings and the consultation with the chairman of court.
	I turn to the specifics of Amendments 54 and 55. These amendments seek to require the Treasury to consult the public before making any order which makes macroprudential tools available to the FPC. I agree with the noble Lord, Lord Eatwell, that effective consultation on macroprudential tools is essential, but this amendment is not the best way to achieve it. The practice of public consultation on important matters of policy and legislation is now well established and is engrained in good government practice. My honourable friend the Financial Secretary said in another place:
	"As a matter of course and as part of the usual statutory instrument process, I expect that the Treasury will consult on macro-prudential tools".-[Official Report, Commons, 28/2/12; col.46.]
	The Government have already committed to a consultation on their proposals for the FPC's initial tool-kit and will produce a draft statutory instrument as a part of that consultation. The Bill as currently drafted does not prevent the Treasury from consulting the public. The Government have already shown their willingness to consult on macroprudential tools and demonstrated their commitment to transparency by asking the interim FPC to make public recommendations regarding its tools.
	I do not quibble with the term "public". From what the noble Lord said, I suspect that he might have been expecting me to come back and say that this is not for the public, but for consultation with the industry. I accept the context in which he uses the word "public". That is not my objection. It is good practice to do it. We are doing it. The FPC has been asked to make public its recommendations regarding tools. However, it may not always be appropriate to consult the public, which is why this requirement should not be in the legislation. Not all macroprudential orders will make large changes to the FPC's direction powers. It is possible that some orders will contain only minor and technical changes and in this instance a three-month public consultation would be unnecessary. The previous Government rightly recognised the risks of undertaking full public consultation in cases where it is not necessary. Their own code of consultation listed seven criteria, one of which stated:
	"Keeping the burden of consultation to a minimum is essential if consultations are to be effective and if consultees' buy-in to the process is to be obtained".
	The Government have stated that they will, in compliance with the principles of good government, consult the public when material changes to the FPC's direction powers are proposed and in non-urgent cases. I hope that that provides reassurance which the Committee seeks.

Lord Eatwell: My Lords, while we are on this point and before the noble Lord, Lord Sassoon, moves on to other elements, I am grateful for his clarification on this issue of consultation. I heard that we expect the Treasury to consult and there is nothing to prevent it consulting. I was seeking that the Treasury be required to consult.
	Turning to the point which the noble Lord has just raised about the consultation criteria, which is enormously helpful, would it not be appropriate to write the criteria in to the conditionality with respect to when the Treasury should consult? Then we will not have simply an expectation or a desire and we will not be saying that there is nothing to prevent consultation. We will be saying that the Treasury should consult in all circumstances other than those specified under the consultation criteria. Would that not be helpful?

Lord Sassoon: My Lords, of course that could be done, but I make the point again that it is now engrained in the principles of good government that there should normally be three months' public consultation. There is a code of consultation that the previous Government put out. It sets it all out very clearly, including the point about burdens and so on that I read out. In its full richness, it cannot easily be drafted in legislation. Indeed, if we were going to do it in this Bill, I imagine there could be hundreds of other Bills in which it could be spelled out. I suggest that the Committee should not only take comfort from the standard governmental practice but from the fact that we have already indicated what we are going to do with the FPC toolkit. I believe we have covered it all and do not need to burden this Bill with a lot of detail any more than other Bills are burdened with it.
	Amendment 57 seeks to provide that the reasons for making an order without consulting the FPC or the public be subject to scrutiny by the Treasury Select Committee. While I agree that accountability to Parliament will be important and the provisions within the Bill reflect that, I believe, as I have said on other occasions, that it is for parliamentary committees themselves to decide what they will scrutinise. I would expect the Treasury Committee to take a great interest in any circumstances where the Treasury felt it necessary to create a new macroprudential tool on an urgent and therefore possibly not-consulted basis.
	I suggest to the Committee that it would be inappropriate for the Government to use primary legislation to force the Treasury Select Committee to scrutinise something. It must be a decision for the committee itself. The committee has already taken great interest in the interim FPC and I hope that this will continue. For those reasons I believe that Amendment 57 is neither appropriate nor necessary.
	We then get to Amendment 58-I was going to say "the dangerous amendment". It seeks to deal with what the noble Lord says is a potentially dangerous situation. He was entirely clear in his reasoning. The amendment seeks to remove the FPC's ability to confer discretion on the PRA and the FCA as part of a direction.

Lord Eatwell: It removes the Treasury's ability.

Lord Sassoon: The noble Lord says that it is the Treasury's ability to confer discretion. Whoever's ability to confer discretion it is-I am just turning back to the drafting of the amendment, which really means looking at the clause as well. I will do that as I speak. I believe it is the FPC's ability to confer discretion, but whether it is the FPC or the Treasury, the purpose of the provision is to allow the direction-making entity to take advantage of the expertise of the PRA and the FCA. Indeed, the noble Lord is completely right. I have now checked the text and it is the Treasury. However, the point is the same. We need to take advantage of the expertise of the PRA and the FCA which hold the expert knowledge relating to the supervision of individual firms. This provision allows the Treasury to take advantage of that expertise in its directions. For example, if the direction required the PRA to require firms with large exposures to hold additional capital, it would be for the PRA to decide which firms had large exposures. That would be something for the supervisor-the regulator-to do. Therefore, I believe that the amendment would unnecessarily hamper the ability of the direction to have proper effect.

Lord Eatwell: Shall we deal with it as I go along? It would be easier for the Committee if we deal with Amendment 58.
	There is a mistake here. The text of the Bill says that the Treasury may make an order which,
	"may confer a discretion on ... the FCA or the PRA".
	In other words, the Treasury has direct macroprudential tool access to the FCA or PRA, not via the FPC. Proposed new Section 9G(5) describes the correct procedure, in that a discretion that could be given to the PRA or the FCA comes via the FPC. In other words, it comes via the macroprudential authority-the institution that is responsible for macroprudential measures. The example given by the noble Lord is particularly pertinent in this case. If there were a requirement to increase the capital that is relative, let us say, to large exposures or to other risk-weighted measures, then that must be a decision of the FPC. I do not see how the Treasury could give that macroprudential role in any shape or form directly to the FCA or the PRA.
	If the provision's wording was that an order may confer a discretion on the Financial Policy Committee, which may then be transferred to the FCA or the PRA at the will of the Financial Policy Committee, the point that the noble Lord has just made about expertise would be entirely well taken. However, if we are to maintain the integrity of this experiment, or indeed project, then we must maintain the FPC as the focus for macroprudential regulatory management. That is why I referred to this element as dangerous, in the sense that it undermines that clear structure within the Bill.

Lord Sassoon: My Lords, according to these provisions, when the Treasury specifies what macroprudential measures the FPC may exercise, the Treasury may, in relation to those macroprudential measures, confer functions on the regulator. It is intended that this is likely to be used for minor matters such as definitions. For example, the Treasury could provide that the FPC may impose additional capital requirements on exposures to residential property, and that the PRA, as the microregulator, would define the meaning of "residential property".
	There is, therefore, a web of interlocking provisions here, which I fear I did not do justice to in my first attempt to cut through this. Would it help the noble Lord if I take this one way, write to him and copy it to the other Members of the Committee who are here, to try to explain how these provisions will work together? I do not believe that there is any gap here, because it is ancillary to the basic directions that will come via the macroprudentials of the FPC. But there may be some ancillary matters, particularly definitional ones, where the expertise of the PRA or the FCA would be operative and for which we need therefore to keep this element and not to close this off in the way that Amendment 58 seeks to do. I will write to try to set that out more clearly. I am grateful to the noble Lord for that.
	Amendment 61 would require the FPC to publish a policy statement within 10 days of a direction being made in relation to a measure made before the FPC had been able to issue a statement of policy under new Section 9L to be inserted into the Bank of England Act 1998 under Clause 3. Again, the Government agree that transparency and openness will be vital to ensure sufficient accountability for the FPC and the use of its tools. However, I believe that this amendment is not appropriate.
	The Bill already provides that a policy statement is produced and maintained for each of the Bank's macroprudential tools. This would also apply to those measures granted using the emergency procedure. However, if a situation were urgent, it would be counterproductive to require the FPC to wait until it has drafted and published a statement of policy before it could use that tool.
	We would expect the FPC to produce a statement of policy for the tool as soon as reasonably practical afterwards, assuming that the tool remains in the FPC's toolkit. I suggest that the requirement in Amendment 61 would be excessively restrictive.

Lord Peston: I am very puzzled by the Minister's answer. That may be because I do not understand what a macroprudential measure is. Macro normally means economy-wide: it does not mean dealing with a specific bank in trouble or anything like that. I would take it to mean that the whole financial intermediation process was in danger of going wrong. I am finding it very hard to believe that, as a matter of urgency if the FPC was acting to deal with that, it would not immediately draft a statement. The idea that it will take time to say, "We have got a crisis on our hands and we are acting" is preposterous. It rather takes us back to the amendment tabled by the noble Lord, Lord Flight, which carried the same kind of message. Surely, the point for the Minister to emphasise is that he wishes to make it clear that all of us take it for granted that the relevant decision-making body should do exactly what my noble friend says.

Lord Sassoon: My Lords, the requirement is there for the statement to be made. Indeed, it would be the full expectation that a statement would be made. We believe that the Bill does not need any extra amendment in relation to statements that relate to macroprudential measures where they are exercised as a matter of urgency. The statement has to be made in any case.

Lord Eatwell: Perhaps I may help the noble Lord. I think that there was a slight misunderstanding in what he said in his initial answer on this amendment. He said that if there were an urgent situation, it would be inappropriate to wait for a statement to be made. That is not what this amendment says. It in no way prevents urgent measures being taken immediately. It simply says that if that is the case-as the noble Lord said, as soon as possible, and as I say, within 10 days-a statement should be produced. Surely, it is appropriate to give confidence and comfort to the markets that they can have some degree of expectation that a measure taken in urgency would be subject to a statement within a timeframe which is known to the market and therefore provides them with appropriate comfort.

Lord Sassoon: My Lords, I do not believe that any additional requirement needs to be put in. The FPC already has transparency requirements at the heart of what it does. I completely agree that in certain cases, if it was an urgent matter, 10 days would not be the answer. It would make a statement based on the merits of the case either immediately, or on some other timescale. The Treasury would need to lay secondary legislation on an urgent basis to create the new tools required. Regardless of this provision, the laying of this secondary legislation would involve a public statement about the need for the tool and how it would be used. There is another backstop. If the new tool was required to be created, Parliament would immediately have a statement in front of it to back up the secondary legislation.
	For a variety of reasons, Amendment 61 is redundant. On the basis of some partial explanations, and my commitment to write to him-particularly to explain in more detail how I believe the matters around Amendment 58 will operate-I ask if the noble Lord will withdraw his amendment.

Lord Eatwell: I am grateful to the noble Lord. Having a committee process where we go backwards and forwards on each particular amendment is helpful and removes the need for me to make a long summing-up speech. I will simply focus on Amendment 58, which has been the main matter of substance within this group which has exercised us, especially after the noble Lord clarified the issues of the consultations so well. Amendment 58 is still a serious problem, and I look forward to the noble Lord writing to me about it. Once I have his views in writing, perhaps we can consult further to find an appropriate way of sustaining the position of the FPC in the way that I have described. In the mean time, I beg leave to withdraw the amendment.
	Amendment 54 withdrawn.
	Amendment 55 not moved.
	Amendment 56
	 Moved by Lord Eatwell
	56: Clause 3, page 7, line 43, at end insert "and the Deputy Governor for Financial Stability"

Lord Eatwell: And now, my Lords, for something completely different. One of the objects relating to the governance of the Bank of England which we discussed in the first two days in Committee, and which is now coming up again, is to increase the collegiality of decision-making within the Bank, particularly with respect to this project. It seems that the deputy governor for financial stability is going to have an important role in the development of the FPC, the development of its activities and, indeed, its overall credibility and acceptance. It therefore seems entirely appropriate in these circumstances that the deputy governor for financial stability should be given a special status within the legislation, both in respect to consultation with the Treasury when an emergency order is introduced, and with respect to the discussions with the Chancellor of the Exchequer after the publication of the Financial Stability Report.
	Amendment 56 seeks to place the deputy governor for financial stability within the framework of consultation when there is an emergency order. Overall responsibility rests with the governor. However, surely the deputy governor, who has the prime responsibility, should be consulted when there is likely to be an emergency order. Moreover, when the Treasury and the Bank have their formal discussions, which are required by the Bill, following the publication of the Financial Stability Report, it is surely appropriate that the person responsible for that report-the deputy governor for financial stability is the acting element in this respect-should be part of those conversations, as we require in Amendment 79.
	If the Government accepted these amendments, we would feel much more comfortable about the overall governance structure of the Bank. It would acquire a more collegial framework, which we strongly feel is very appropriate to the development of these new measures. I beg to move.

Lord Sassoon: My Lords, these amendments reprise an argument that was raised by the shadow Chancellor during the Bill's Second Reading in another place.
	As the noble Lord, Lord Eatwell, said, Amendment 56 would require the Treasury to inform not only the governor but the deputy governor for financial stability when it considers that there is insufficient time for the FPC to be consulted on the introduction of a new macroprudential tool.
	Amendment 79 would place in the Bill a requirement for the deputy governor for financial stability to attend the biannual meetings between the Chancellor and the governor following the publication of the FPC's annual stability report.
	Clearly the Bank plays a crucial role not only in relation to the management of the UK's economy but specifically, under the Bill, in relation to macroprudential and microprudential regulation. In fulfilling these very important responsibilities, we expect the Bank to act as the serious and respected organisation that it is. This means that the senior executives of the Bank will work as a team to determine the best course of action to achieve the Bank's objectives and comply with the legal obligations placed upon it. The governor is the leader of that team and, working closely with his senior executives, will ultimately take the key decisions within the Bank.
	It is clear that the success of the new regulatory structure, which, rightly, we are spending so much time debating, relies heavily on the relationship between the Treasury and the Bank of England, and I believe that the Bill provides the necessary clarity of responsibilities. However, it also depends on the personal relationships at play here, particularly between the most senior leaders of the two bodies-the Chancellor of the Exchequer and the Governor of the Bank of England. One of the major problems leading up to the financial crisis was that the tripartite committee did not meet at principals level during the previous decade.
	Therefore, there are clearly things that need to be legislated for, and this is not what the noble Lord is in any way seeking to argue against, but it is important background to this discussion. The Chancellor and the governor must meet regularly to discuss financial stability. That is why the Bill and the regulatory structure that it establishes place at the heart of the matter the institutional relationship between the Treasury and the Bank, and the personal relationship between the Chancellor and the governor.
	I do not see any reason to attempt to insert into that relationship a further statutory channel of communication. First, I just do not believe that it is needed. The Treasury ministerial team regularly meets the current deputy governor for financial stability and the chief executive of the FSA. There is also a constant dialogue between the deputy governor and senior Treasury officials via meetings, phone calls and e-mails. The same was true under the previous Government, as I know, since I was part of it for three years, and it was very effective at working level. That has not changed and it will not change under the new structure. In practice, the deputy governor may well attend the biannual meetings between the two principals. If the Treasury notified the governor that a new macroprudential instrument needed to be introduced on an urgent basis, the deputy governor would be well aware of that.
	I will just point out one slight correction that is relevant to this, which is that the FPC is responsible for the financial stability report to the deputy governor. That is relevant to the discussion of this amendment because it shows that we should not excessively personalise the relationships or draw attention to particular individuals if that risks, as it may do in this instance, causing confusion about who is responsible for what. I agree that the relationship with the two leaders of the bodies, the Treasury and the Bank of England, should be hard-wired in, as we have done. In practice, the deputy governor is, and will be, very much involved in all the relevant discussions. Amendments 79 and 56 are not necessary and go too far.
	There is a strong argument here that such a provision could be positively unhelpful by opening the door to the possibility that the Bank may be divided and encouraged to speak with more than one voice. There is a risk of recreating elements of dysfunctionality that were in the system as it used to exist. I do not want to overplay this, since the main argument is the earlier one. However, I do see a slight but secondary danger that this provision could be built on in the wrong circumstances. On the basis of the earlier explanations, I hope the noble Lord, Lord Eatwell, will withdraw this amendment.

Lord Eatwell: My Lords, the noble Lord's comments have been very valuable. The Government have continuously argued that the tripartite system set out by the previous Government did not work because of its structure. He has now admitted that it did not work because the principals did not work it and did not meet. That is a very different issue. The fact that the principals did not meet, and that we now find the need for them to meet in primary legislation, illustrates that it was not the structure that was wrong but the people working in it that went wrong.
	I agree with the noble Lord that the Bank should work as a team. I am very much in favour of that. However, we have to distinguish between the captain of the team and those who take the penalty kicks. We may want Martin Johnson to be the captain but we want Jonny Wilkinson to take the kicks. In those circumstances, the particular specialist role of the deputy governor for financial stability seems to be an important element in effective communication between the Treasury and the Bank. Moreover, the noble Lord expressed, in a careful way, that this might expose differences in the Bank's position and suggested that this might create dysfunctionality. There are differences in this Committee, but this Committee is not dysfunctional. It is making progress. The differences between us are highlighting, as it is their role to highlight, some problems in the Bill that can make it a better Bill, which is our entire objective. I do not accept that differences within a reasonably run organisation necessarily lead to dysfunctionality. That seems to be Sir Humphrey rampant, determined that there is a singular position.
	The whole issue of governance of the Bank is still somewhat in the air. This is one element that we wished to put in the Bill and felt would be enormously helpful. Now the noble Lord has recognised that the tripartite system did not fail because of its structure, but because of the personalities who failed to work it, I hope that he will consider the value of these amendments when we return to them on Report.

Lord Barnett: I was confused before we started and my noble friend and the Minister have confused me even more. They talk about teams; apparently there is a Treasury team and a team from the PRA, MPC or FCA-I am not sure which it is. There are various teams who will be meeting to solve a crisis if it arises. The Chancellor of the Exchequer, of course, would know nothing about all of this. The people who know something about it might be here with us, including the noble Lord, Lord Sassoon, who is a member of the team, apparently. Maybe he will take the penalty kicks.

Lord Peston: The noble Lord was talking rugby and we are talking football.

Lord Barnett: We are talking about possible serious financial crises and stability. At the end of the day, the Chancellor will be held responsible if something goes wrong with financial stability. There could be as many teams as we liked, but the Chancellor would ultimately have to accept responsibility, even if he knew nothing about it. I am sure that any Chancellor-I am looking at one now-would know everything that was going on in his team.
	I am confused about what the clause or the Bill will do to help us in this matter. My noble friend's amendment might help, although we are told by the Minister that it could "excessively personalise". I am blessed if I know what that is supposed to mean, but no doubt the Minister will tell us. At the moment, I am more confused than ever. I thought that I understood a few things about financial matters but, listening to the exchange between my noble friend and the Minister, I am confused more than ever.

Lord Eatwell: Perhaps before I sit down I can help my noble friend. We are discussing what is perceived to be an essential failure of the previous system. The failure was that the people responsible for working it did not take advantage of the tools that were provided. Here in the Bill, as the Minister pointed out, the Government have rightly insisted that the Treasury and the Bank convey information to each other, consult each other and act collectively when necessary. That is appropriate, and I commend the Government in that respect. I simply think that they have not gone far enough.

Lord Peston: If my noble friend were to ask himself who would know most about a macroprudential measure in the Bank, surely that would be the deputy governor, because that is his job. My noble friend is saying that the Treasury should consult. I would argue that the Treasury is sensible enough to know that it should consult the one person who would know what was going on.

Lord Eatwell: Just to reinforce what I said, neither the Government nor this side have entire confidence in the consultation procedure between the Bank and Treasury as it has taken place in the past. The Government are seeking to reinforce that confidence, and I wanted to reinforce it further. But at this stage I beg leave to withdraw the amendment.
	Amendment 56 withdrawn.
	Amendments 57 to 61 not moved.
	Amendment 62
	 Moved by Baroness Noakes
	62: Clause 3, page 8, line 32, at end insert-
	"(1A) If the Treasury considers it appropriate to proceed with the making of an order under section 9K, the Treasury may lay before Parliament-
	(a) a draft order, and
	(b) an explanatory document.
	(1B) The explanatory document laid under subsection (1A) must-
	(a) introduce and give reasons for the order,
	(b) explain why the Treasury considers that the order serves the purpose in section 9K, and
	(c) be accompanied by a copy of any representations received from the FPC or the Governor.
	(1C) The Treasury may not act under subsection (1A) before the end of the period of 12 weeks beginning with the day on which the consultation began, unless the order is made in accordance with section 9K(2)(b).
	(1D) Subject as follows, if after the expiry of the 40-day period the draft order laid under subsection (1A) is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.
	(1E) The procedure in subsections (1F) to (1J) shall apply to the draft order instead of the procedure in subsection (1D) if-
	(a) either House of Parliament so resolves within the 30-day period, or
	(b) a committee of either House charged with reporting on the draft order so recommends within the 30-day period and the House to which the recommendation is made does not by resolution reject the recommendation within the period.
	(1F) The Minister must have regard to-
	(a) any representations,
	(b) any resolution of either House of Parliament, and
	(c) any recommendation of a committee of either House of Parliament charged with reporting on the draft order, made during the 60-day period with regard to the draft order.
	(1G) If after the expiry of the 60-day period the draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the draft order.
	(1H) If after the expiry of the 60-day period the Minister wishes to proceed with the draft order but with the material changes, the Minister may lay before Parliament-
	(a) a revised draft order, and
	(b) a statement giving a summary of the changes proposed.
	(1J) If the revised draft order is approved by a resolution of each House of Parliament, the Minister may make an order in the terms of the revised draft order.
	(1K) For the purposes of this section, an order is made in the terms of a draft order or revised draft order if it contains no material changes to its provisions.
	(1L) In this section, references to the "30-day", "40-day" and "60-day" periods in relation to any draft order are to the periods of 30, 40 and 60 days beginning with the day on which the draft order was laid before Parliament.
	(1M) For the purposes of subsection (1L), no account is to be taken of any time during which Parliament is dissolved or prorogued or during which either House is adjourned for more than four days."

Baroness Noakes: My Lords, the noble Lord, Lord McFall, is unable to be with us this afternoon because he is en route to receiving an honorary degree tomorrow, which I am sure the Committee will agree is well deserved.
	This is another amendment that the noble Lord, Lord McFall, and I have tabled to ensure that the issues covered in the first report in this Session of the Treasury Select Committee in another place are properly debated. I am pleased to see that the noble Lord, Lord Eatwell, has added his name to the amendment. The noble Lord, Lord Eatwell, has already emphasised the importance of the macroprudential tools which are covered by new Sections 9G to 9M. I am sure that the thrust behind these new sections will command general support, but the detail of the new tools must be approached with very great care. My noble friend does not like the term "experiment", but most of us think that if something looks like an experiment and sounds like an experiment, it is an experiment. We can not get away from the fact that, because these macroprudential tools have not been used before in this country, nor is there much international experience to go by, we are talking about something very new which should receive very considerable scrutiny. Not even the Bank of England claims a monopoly of wisdom on what these macro- prudential matters should be.
	This experimental phase will run for some time. The measures that are initially specified will almost certainly vary over time, as the focus of risks to financial stability changes and as experience is gained of working with the measures. We have something that is very new and, as the noble Lord, Lord Eatwell, has also pointed out, these are very powerful tools to be placed into the hands of the FPC. We have already seen the FPC's first shot at what it believes those macroprudential tools should be. It has suggested a countercyclical capital buffer, sectoral capital requirements and a leverage ratio. At that time the FPC said that some other measures, such as loan-to-value ratios and loan-to-income ratios, would need public support before they were introduced. I would like to suggest that all the potential measures need public support and therefore there has to be proper debate before it would be wise to introduce them. The Government have, correctly, decided that the new measures cannot simply be set by the FPC or the Bank. They have to be prescribed by the Treasury by order, and that order is subject to parliamentary approval. That meets the point which troubled the noble Lord, Lord Peston, a little while ago.
	So far, so good. The measures are to be initially specified by the Treasury, not left to the Bank and the FPC, and they have to be approved by Parliament. The problem is that new Section 9M prescribes the draft affirmative procedure. This procedure is, of course, better than the ordinary affirmative procedure which is, in turn, better than the negative procedure. However, none of these procedures is, in truth, more than a rubber stamp. Oppositions know this only too well, but that knowledge seems somehow to evaporate when they find themselves on the government Benches. Some of us still remember.
	The importance of the macroprudential measures lies not in their technical specification and potential impact on financial stability, though those are very important issues. The equally important issues are the consequences of using the measures and their impact on the wider economy. These matters need proper scrutiny and debate both in Parliament and, as we discussed earlier, outside. Once the FPC has been granted these measures they will be able to use them without any further parliamentary intervention. The price for getting these wrong could be very high and so Parliament needs to be very sure that it understands the potential impact of the powers and that it has an opportunity to amend or circumscribe them if that is appropriate. The only way we can get a proper debate in these terms is through the use of the super-affirmative procedure, and that is what the amendment proposes.
	The Treasury Select Committee in another place believes that the super-affirmative procedure is appropriate and fully in accordance with Erskine May, which describes the procedure as used,"
	"in enactments where an exceptionally high degree of scrutiny is appropriate".
	It is inescapable that these measures fall into that category. It is generally the case that Governments never start out thinking that the super-affirmative procedure is the right one. However, the will of Parliament does sometimes prevail over the Executive in this area.
	The Government recently accepted in the Public Bodies Act 2011 that their powers to wind up such hugely important bodies as the Home Grown Timber Advisory Committee or the Railway Heritage Committee should be subject to the super-affirmative procedure, but it appears that they have yet to be convinced that granting these massive new powers to the FPC is of that importance. It is a no-brainer that the super-affirmative procedure should be used and I hope that my noble friend will be prepared to accept that that is the case.
	I am aware that the Delegated Powers Committee, which I hold in the highest regard, has not raised objections to the affirmative procedure in the Bill. That is interesting but not conclusive. The final arbiter on these matters is Parliament. The Delegated Powers Committee acts as an early warning system of problems for Parliament to address. The committee does not act on behalf of Parliament to approve particular procedures.
	In responding to the Treasury Select Committee, the Government have raised concerns about timing and, in particular, the impact of Recesses. This is a red herring. We are not generally dealing with matters which need to be introduced immediately. However, if the FPC woke up one morning with an urgent need to acquire a new macroprudential tool, one's first reaction would be that that was surprising. However, if that were genuinely the case and the Treasury were committed, my Amendment 62 does not remove the ability to act with urgency. The powers set out in new Section 9M for the made affirmative procedure can be used when the Treasury is convinced of the urgency of the matter.
	When the Governor of the Bank of England came to talk to a number of us last week, he rightly emphasised the accountability of the Bank and the FPC to Parliament. Accountability is an ex post concept: Parliament also has to have the ability to be involved fully ex ante in the formulation of important matters such as the macroprudential measures, and the super-affirmative procedure is the only proper way to proceed. I beg to move.

Lord Northbrook: My Lords, I support my noble friend Lady Noakes in her Amendment 162. Like my noble friend, I believe that there should be stronger parliamentary scrutiny of the macroprudential tools.
	While I accept that there must be flexibility to grant the FPC new tools quickly in rare and urgent circumstances, I still agree with the Treasury Select Committee's report on the accountability of the Bank of England. As the legislation stands, approval by the House of Commons requires only a 90-minute debate in a general committee and a decision without debate in the House. Like the Select Committee, I recommend that the Government amend the draft legislation to require debates on orders prescribing macroprudential measures to be held on the Floor of the House and not be subject to the 90-minute restriction. The House would benefit from prior scrutiny of such orders by the committee. This view is supported by the Joint Committee on the draft Financial Services Bill, which agrees that there should be a system of enhanced parliamentary scrutiny of these important tools. Like my noble friend Lady Noakes, I was disappointed. Although I respect enormously the Delegated Powers Committee, I felt that its arguments for not wishing this were not as substantial as I would have liked.

Lord Eatwell: My Lords, I, too, support the noble Baroness, Lady Noakes, in her amendment. I also commend the Treasury Select Committee on having done such a good job in presenting the arguments for appropriate scrutiny of elements in the Bill.
	As the noble Baroness, Lady Noakes, pointed out, the measures which the Financial Policy Committee is to have in its hands are extremely powerful. Let us consider introducing a leverage ratio in British banking. That notion has not existed within the structure or organisation of British banking. It would change entirely the relationship between the liability side and the asset side of the balance sheet of British banks. It is a major measure which thereby deserves appropriate consideration of the sort set out in the amendment.
	Let us consider also the other tool which the FPC is claiming as appropriate for itself: pro-cyclical provisioning. Pro-cyclical provisioning involves enormously complicated decisions, both in the banking sector and in accountancy. Accountants tend to be very hostile to the notion of provisioning since it can be used to hide profits. It is a standard procedure which was common in the Enron case. If we are going to formulate a structure of pro-cyclical provisioning which not only achieves the goals that the FPC and all of us want but satisfies the complex needs of appropriate accounting-we have seen recently how accounting can be misused in the banking sector-these measures require very careful scrutiny. As the noble Baroness said so clearly, a 90-minute debate, which is then a rubber stamp, is entirely inappropriate. The procedure set out in the amendment would not only provide that level of scrutiny but contribute to the public confidence in these procedures which is vital if we are to achieve the goals which we have set out for the FPC.

Lord Peston: My Lords, I remind the Committee by way of background that we are discussing adverse, exogenous shocks to the financial intermediation process. Those shocks are impossible to forecast and extremely hard to recognise even when they hit the system. My understanding of why we require macroprudential measures is that it improves the way in which the system works so as to be able to cope with those shocks. It is partly to protect the system of financial intermediation and partly to improve its effectiveness and efficiency-so we have no difficulty about that.
	However, if we need these instruments, it follows that in a democracy-and I still include your Lordships' House as part of our democracy-Parliament must be able to scrutinise them appropriately. As the noble Baroness, Lady Noakes, is well aware, I am not an expert on all the different kinds of orders, and she simply lost me on them, but I ask her whether the measures set out in her amendment give Parliament, including your Lordships' House, a full right to scrutinise the introduction of the macroprudential measures and-here I got a bit lost-to amend them in the sense of saying to the Government, "We think that what you are doing is right, but you can do it in a rather better way."? If that is what the amendment says, and I see the noble Baroness nodding, the Minister has a duty to the House to say, at the very least, that he will take it away and think it through.

Lord Barnett: My Lords, I support the noble Baroness, Lady Noakes, in a way, although the amendment would add even more confusion to the Bill than is already there. My noble friend Lord Peston referred to the fact that it is about shocks. I hope it is not an urgent shock, because the amendment would give time for draft orders to be laid for a period of up to 60 days or before the end of a period of 12 weeks. Then there must be orders in both Houses. I assume that both Houses would also take advice from their Select Committees. All that will be going on while urgency is required. I find the whole thing as confusing as my noble friend does. We are told at the end of the amendment that if this shock arises when the House is not sitting, all kinds of other things happen. As my noble friend said, if the noble Lord, Lord Sassoon, cannot clarify the whole thing for us in asking for the amendment to be withdrawn, we should be glad if he would take it away to think about it further and let us know what he or someone else thinks about it.

Baroness Kramer: My Lords, I am very much in favour of scrutiny by this House. I cannot pretend to be an expert either on the different varieties of orders or on the different measurements and tools that the FPC might introduce, but I would be concerned about a mechanism in this House that enabled tools to be amended. Although we have some experts, the capacity to understand the internal workings of a tool with sufficient precision to be able to introduce an amendment to a ratio strikes me as not the particular skill of a legislature or this House. We can raise questions about it or require that it be dismissed because the Government have not sufficiently made their case, but to amend it is not a skill with which we are particularly equipped.
	For that reason, and with great respect to the House, it seems to me that the capacity for amendment is inappropriate in this case. The capacity to force the Government to make their case and to judge on that case is entirely appropriate, but not the capacity to substitute; that worries me.

Lord Myners: My Lords, I have considerable sympathy with the amendment. I declare my interest as a former member of the court from 2004 to 2008. I fully support the creation of the Financial Policy Committee-I think that it will become the most important committee in the Bank-but I am deeply anxious about the governance of the Bank and the lack of appropriate oversight from the court, the oversight committee as envisaged or, indeed, Parliament.
	The Minister is in many ways the architect of this restructuring of regulation, as part of a project which he led for the Opposition, having ceased to work in the Treasury. I understand his thinking in evolving the proposals, but events have moved on. In the light of what we now know about the Bank of England, we must ask whether it is still right to put so much authority in the hands of the Bank without appropriate accountability.
	When I was a member of the court, I sat in on a meeting of the Financial Stability Committee. That would have been in 2006 or 2007. At that meeting, one of the governors proposed that as a mechanism to cope with the crisis, the Bank should buy half a dozen or a dozen bicycles in order that members of the Bank could move swiftly and anonymously around the City. That tells us a huge amount about where the Bank sits in terms of its understanding of the complexity of financial markets. Some of the things that we have seen over the past few weeks have simply raised more questions about the wisdom of putting so much power in the hands of the Bank.
	We are also about to have a piece of legislation to implement the recommendations of the Independent Commission on Banking. Having been intimately involved in the Government's response to the banking crisis from 2008 onwards, I would point out that the losses incurred in the British banking system-at HBOS, Lloyds and Royal Bank of Scotland-largely occurred within the ring-fence. The losses of $5 billion which we have seen recently reported in London from JP Morgan took place within the ring-fence as envisaged by the Vickers report. The noble Baroness, Lady Kramer, looks somewhat sceptical about that. Those losses occurred within the treasury operations, or the investment office, of JP Morgan, and as such lay within the ring-fence rather than outside it. In being sympathetic to this amendment, and hoping that at the very least the Minister will go away and reflect on that, I think that the Minister will have to rethink some of the fundamental building blocks of this legislation-in particular the great powers and responsibilities that we are placing in the hands of the Bank of England-before we reach its next stage. These are powers and responsibilities that the Bank of England has historically not had and, in my judgment, is still not equipped to exercise.
	If we are to do this then, at the very minimum, we must ensure that the Bank and its various agencies, including the Financial Policy Committee, are properly accountable to a court which is clear about its functions and clear about who it reports to. As a former member of the court I know that it was never clear who we reported to. It must also be clear about its parliamentary accountability.

Lord Sassoon: It is always entertaining to have one of the Second Reading speeches of the noble Lord, Lord Myners. I am not sure what it had to do with this particular amendment-which is to do with super-affirmative procedures in respect of orders made by the Treasury-but, anyway, we did talk extensively about governance of the Bank of England over the last couple of sessions, and there will no doubt be other opportunities to talk about them. Here we are talking about an amendment that seeks to require macroprudential orders to be subject to the so-called super-affirmative procedure. Although I was not going to question the competence of Parliament to get into the detail of the macroprudential tools, my noble friend Lady Kramer did make a powerful point about the level of scrutiny that is appropriate to tools that are-yes-very important but also highly technical.
	I say that in the context of believing that proper parliamentary scrutiny of these tools will be important to the overall accountability. That is why the Bill, as has been noted, requires the macroprudential orders to be subject to the affirmative procedure. As the Committee would expect, the Government maintain that that strikes the right balance between accountability and timeliness. Orders cannot be made unless a draft is laid before and approved by resolution of each House of Parliament.
	I will of course draw attention to what the Delegated Powers and Regulatory Reform Committee had to say, although my noble friend Lady Noakes dismisses its remarks as "interesting but not conclusive". As a statement of fact, it is clear that its remarks are not conclusive. However, I take issue with her when she dismisses its remarks as "interesting", because I think that we should take the consideration of the DPRRC very seriously on matters such as this. For the help of the Committee I shall quote the relevant paragraph, because I think that it shows that the DPRRC has thought about this matter in detail. It states:
	"The importance of the power is recognised by the application of the draft affirmative procedure or, in urgent cases, the 28-day 'made affirmative' procedure ... The Joint Committee on the Draft Bill and the House of Commons Treasury Select Committee have recommended an enhanced affirmative procedure for the non-urgent orders, based on that in the Public Bodies Act 2011. But the affirmative procedure provided for in the Bill should be a sufficient safeguard against inappropriate use of these powers."
	I really do not think that we should dismiss what the committee has said.
	Before I go on to underline the point about the question of time it might help the Committee-specifically, in answer to my noble friend Lord Northbrook and others who have talked about a 90-minute rubber stamp and so on-if I say that my right honourable friend the Chancellor made an additional commitment on this when he reaffirmed in another place the Government's commitment to full scrutiny. He said that he would be happy, if agreed through the usual channels, to debate these tools on the Floor of the House. The Government have therefore made a commitment, recognising the importance of these tools, to go further than the strict requirements of the procedure in the Bill as it stands. I hope that that will help my noble friends and the Committee generally to understand that we want to do something that recognises the importance of these tools but without locking ourselves into a super-affirmative procedure, which creates the potential for unacceptable delays even in non-critical circumstances. What may be a non-critical circumstance at the start of a procedure that takes a minimum of 124 days may, in the sort of market conditions we have now, be urgent by the time we are well into those 124 days.

Lord Peston: My Lords, one of our difficulties in discussing this matter is that no one has mentioned a specific macroprudential measure. We are discussing them totally in the abstract, so perhaps I might mention a couple and say why the positive approach might well be relevant. If we look back to the corrupt practices of the past on the part of financial intermediaries, I suppose the worst of them was the mixing up of a package of toxic and non-toxic assets and then marketing them as if they were non-toxic. I would assume that for the relevant body here, if it was confronted with this, it would be relevant to introduce a macroprudential measure to say that that is simply not going to happen. It would describe the measure and intervene. The Minister shakes his head. Is he saying that that is not an example of a macroprudential measure?

Lord Sassoon: I would say that examples of macroprudential measures are things such as leveraged ratios. If we are talking about the mis-selling of products, that is generally not going to be a question of macroprudential tools but a conduct matter that the FCA would deal with. They would not be the sorts of things covered in the macro toolkit of the Financial Policy Committee, as the noble Lord describes it.

Lord Peston: Speaking as an economist, that sounds complete nonsense to me. I point out to the Minister that the measure I have just described was at the centre of the collapse of both the British and American financial systems in the post-2007 era. This is precisely what these financial intermediaries were up to and precisely what led to the enormous damage that all the economies have suffered. How the Minister can possibly say that that is not a relevant tool is completely beyond me. I could give him some more examples, but let us leave it at that one.
	The only question then is whether the noble Baroness, Lady Kramer, is right that if it were introduced as an order we could not debate it in a way to be able to say that the Government's method of dealing with this problem could be bettered. That is the only point at issue here. I would not like us to do this all the time. I would simply like us-and I mean the other place at least as much as us-to have the power to be able to say, "We can see that you've identified the problem and that you've got a solution, which you're introducing by this order, but we think you could do it better this way". That is all I am arguing and I cannot see what is unreasonable about it.

Baroness Kramer: I thank the noble Lord, Lord Peston, for giving way on that because I am again working in murky waters here. The Minister may correct me but I think the example that he referred to was of a leverage ratio, in which the assets had to be weighted in some way for their riskiness or toxicity. There would be an argument for using those weights within a leveraged ratio, would there not? You can use risk weights on anything, I say, having used them. However, that is not the kind of detail we would want to get into on the Floor of this House. My argument is that it would become so highly technical. If there is an amending capacity, that is exactly where we will take ourselves-and without a series of blackboards and three academics to lead us through it, I am not sure we could manage, frankly.

Baroness Noakes: Perhaps I might intervene on whether there is the power to amend or not. Debating under super-affirmative procedure is not like considering a Bill. There are no amendments tabled and voted on but there is the ability of either House to pass a resolution saying what it thinks. Much as the noble Lord, Lord Preston, articulated, either House would be able to consider whether it thought that the tools were up to the job. More importantly, as I tried to explain in my opening remarks, Parliament could consider the potential impact of using those tools and say to the Government whether it thought the tools appropriate in the context of the wider impact, not simply the narrow impact, on the regulation of financial institutions. The super-affirmative procedure does not allow a specific amendment process but it allows Parliament to say, "Government, we think you have got this wrong". It is in contradistinction to any of the other procedures where we have the nuclear option: we either accept the order or we do not accept it. It is a more deliberative and amenable process, in particular for considering these very new tools which are being talked about. I hope that helps the Committee.

Lord Sassoon: My Lords, this has been a helpful additional go-round of the tracks because it illustrates, I suggest, that with the procedures already in the Bill and the commitment that my right honourable friend the Chancellor has made to debate the toolkit on the Floor in another place-the same could apply here, clearly, subject to the usual channels agreeing it-we have in substance exactly what my noble friend wants to achieve. We have that without locking ourselves into the difficulty that goes with the 124 days, plus Recess time, which we can get locked into in cases that may be either minor ones where none of this is warranted or, more particularly, ones that started off not being urgent but then become more so. Having had this useful go-round and with the reassurance I have given of what the Chancellor has committed to, I ask my noble friend if she will withdraw her amendment.

Baroness Noakes: My Lords, the Minister has not appreciated the difference between the affirmative procedure and the super-affirmative procedure. Simply having a debate can have only one outcome, of approving or not approving the order, and that is the fundamental flaw. It is the thing that we all learn in opposition and that all Governments forget. Whether or not additional time is allowed or whether a different procedure is adopted in the other place may well improve the quality of debate but it cannot change its outcome. In your Lordships' House, it is always open to us to have a debate on a draft order on the Floor of the House by the simple mechanism of any noble Lord tabling some kind of Motion disagreeing with it. That will automatically bring it into the Chamber. That is not the problem; the issue is the outcome.
	The super-affirmative procedure is a more deliberative procedure; it allows views to be expressed without going so far as to say, "We are not having it"-the outcome of which is usually described as very harmful. That is why the House has a general practice of not voting orders down, because it is such a dangerous thing to do. That is why this super-affirmative procedure gives each House of Parliament more opportunity to debate all the issues contained within the order. It may be that we need a greater range of ways of handling this; however, all the methods of handling an order other than the super-affirmative can allow only acceptance or rejection of the whole. That is a difficult thing for the House to do-to put itself in the position of disagreeing with the whole.
	The other issue is delay, although I do not see an issue here. The issue is about whether we take the right amount of time to get the thing right. The Government have available in the Bill, unaffected by my amendment, the ability to put something through on an urgent basis. Nobody would dream of circumscribing that power, because it may well be necessary. Even in the middle of the process to get a new measure through, if it was suddenly decided that it was so important that it had to come in urgently, the Government could default to that procedure. As I said earlier, the timing issue is therefore a red herring. The issue is about whether government can give the proper amount of time and consideration to these important new measures.
	I will consider carefully what my noble friend has said, but my first instincts are that he has not said enough to convince me that the super-affirmative procedure is not the appropriate procedure for these new measures. I beg leave to withdraw the amendment.
	Amendment 62 withdrawn.
	Amendments 62A to 67 not moved.
	Amendment 68 had been withdrawn from the Marshalled List.
	Amendment 69 not moved.
	Amendment 69A
	 Moved by Lord De Mauley
	69A: Clause 3, page 10, line 18, at end insert-
	"Explanation
	9QA Duty to prepare explanation
	(1) In connection with the exercise of any of the specified powers, the Financial Policy Committee must prepare an explanation of-
	(a) the reasons for the Committee's decision to exercise the power, in the way in which it is being exercised, and
	(b) the Committee's reasons for believing that the exercise of the power, in the way in which it is being exercised, is compatible with the duties of the Committee under the following provisions-
	(i) section 9C(1) (as read with section 9C(4)), and
	(ii) section 9E.
	(2) The specified powers are-
	(a) the power to give a direction under section 9G;
	(b) the power to make recommendations under section 9N, so far as relating to the exercise of the Bank's functions in relation to payment systems, settlement systems and clearing houses;
	(c) the power to make recommendations under section 9O, so far as relating to the exercise by the Treasury of their power to make orders under any of the provisions mentioned in subsection (2) of that section;
	(d) the power to make recommendations under section 9P.
	(3) The explanation required by subsection (1) in relation to the duty in section 9E(3)(a) must include an estimate of the costs and an estimate of the benefits that would arise from compliance with the direction or recommendation in question, unless in the opinion of the Committee it is not reasonably practicable to include such an estimate."

Lord De Mauley: My Lords, this group of government Amendments 69A, 69B, 76A, 76B and 76D, seeks to strengthen the transparency and openness of the decision-making procedures of the FPC. We have already debated the government amendments providing the FPC with a secondary objective for economic growth. The Government are making the changes to this group of amendments in response to those who have argued that the FPC should be required more explicitly to balance the demands of financial stability and economic growth.
	Amendment 69A supplements this important addition by requiring the FPC to prepare an explanatory statement when exercising its powers of direction and recommendation in relation to the PRA, FCA, the Treasury or the Bank, in relation to the Bank's regulatory functions. Such statements must clearly explain how the FPC considers the exercise of its powers to be consistent with its objectives, including both its primary stability objective and its secondary objective for economic growth-the "brake" which prevents the FPC taking any action that would seriously damage long-term growth. The statement must also explain the FPC's view of the compatibility of its actions with its duties under new Section 9E, which require it to have regard to the Bank's financial stability strategy; to the need to avoid, as far as possible, requiring the PRA or FCA to act in a manner prejudicial to their own objectives; and to the important principles in regulation of proportionality, transparency and international co-operation and co-ordination. Amendment 76A requires the statement to be published in the next financial stability report.
	The effect of these amendments will be to ensure that all interested parties-Parliament, the financial services industry and members of the public-will be able to examine, and indeed challenge, the balance that the FPC seeks to strike between stability and growth. I hope that noble Lords will agree that these are important additions to the FPC, increasing its transparency and accountability, and that they will therefore agree to them.
	However, the Government are going further than this. Once the FPC has taken action, through its powers of direction and recommendation, Amendment 69B requires it to keep any open action under regular review. In the case of extant directions-that is, directions which have not been revoked-the FPC must review them at least annually. In the case of recommendations, the FPC must make arrangements to keep under review those recommendations it considers to be of continuing relevance. This will ensure that, once it has taken a specific action, the FPC will from time to time consider whether that action remains necessary and proportionate.
	Amendment 76B requires the FPC to publish summaries of such reviews in the financial stability report, once again providing for improved openness and accountability. These are important procedural additions which underline the Government's commitment to establishing the FPC as a balanced and proportionate macroprudential regulator. I beg to move.

Lord Myners: As I listened to the Minister, it seemed to me that he was implying that there may be times when the FPC has no recommendations outstanding. Surely, however, the FPC will always have recommendations outstanding. It will always have a preferred leverage ratio or a gearing ratio or a deposit to loan or some other of the macro-economic tools that it has to apply to the banking sector. I am not sure how keeping recommendations under review and reporting on them actually works in a situation in which there will always be recommendations in place. I cannot envisage a situation in which the FPC will say, "We have no views on anything, and therefore there is nothing that we need to be reporting and monitoring". I may have misunderstood the point; if I have, I apologise, but I would appreciate some guidance from the Minister.

Lord Eatwell: My Lords, we broadly welcome these amendments, in the sense that they are adding to the overall scrutiny and assessment of the activities of the FPC and thereby reinforcing, we believe, its general acceptability and strength of purpose. However, I want to raise a warning flag with respect to new Section 9QA(3), in which it is argued that the FPC will have to prepare,
	"an estimate of the costs and an estimate of the benefits that would arise from ... the direction or recommendation in question".
	These are macroeconomic measures. It is virtually impossible to provide a simple numerical estimate of the cost or benefit of a macro measure. There will be either a tendency to overestimate the costs, or a tendency to overestimate the benefit, in this particular case. Presenting an assessment in quantitative terms will give spurious precision and, indeed, spurious credibility to a particular measure. I assure the Minister that for any macro measure, I could write an entirely credible report saying that the costs exceeded the benefits and an equally credible report saying that the benefits exceeded the costs. This is simply extending the whole notion of cost-benefit analysis beyond the range in which it can effectively operate. It would be valuable to take account of an attempt to describe in broad qualitative terms the costs and benefits. However, please let us not have the spurious precision of numerical calculations of variables which, by their very nature, cannot be expressed in precise terms.

Lord De Mauley: My Lords, I am grateful to noble Lords for those questions. The noble Lord, Lord Myners, says that effectively there will always be a recommendation that is extant. He is probably right about that. The requirement is to review regularly any recommendations that have a continuing effect, and that includes any recommendations to set or maintain any particular level of leverage or capital, as the noble Lord suggests. I broadly agree with him, actually.
	The noble Lord, Lord Eatwell, is right to say that a cost/benefit analysis is a difficult thing to do. That does not mean that the committee should not attempt it, so that at least interested parties have an opportunity to review it and make their comments.
	Amendment 69A agreed.
	Amendment 69B
	 Moved by Lord Sassoon
	69B: Clause 3, page 10, line 18, at end insert-
	"Review
	9QB Duty to review directions and recommendations
	(1) The Financial Policy Committee must-
	(a) before the end of each review period, review each direction given by it under section 9G, other than a direction revoked before the end of the review period, and
	(b) prepare a summary of its conclusions.
	(2) A review period is-
	(a) in relation to the first review, the period of 12 months beginning with the day on which the direction was given, and
	(b) in relation to subsequent reviews, the period of 12 months beginning with the day on which the previous review was completed.
	(3) The Financial Policy Committee must maintain arrangements for the review at regular intervals of any recommendations that it has made under any of sections 9N to 9Q and are of continuing relevance."
	Amendment 69B agreed.
	Amendments 70 to 74 not moved.
	Amendment 74A
	 Moved by Lord Sassoon
	74A: Clause 3, page 12, line 9, leave out "Committee's objectives" and insert "objectives set out in section 9C(1)(a) and (b)"
	Amendment 74A agreed.
	Amendments 75 and 76 not moved.
	Amendments 76A to 76C
	 Moved by Lord Sassoon
	76A: Clause 3, page 12, line 9, at end insert-
	"(4A) If during the reporting period the Committee has made any decision in relation to which section 9QA requires the preparation of an explanation, the financial stability report must include the required explanation."
	76B: Clause 3, page 12, line 9, at end insert-
	"(4B) If during the reporting period the Committee has completed the review of a direction or recommendation, the financial stability report must include a summary of the review."
	76C: Clause 3, page 12, line 14, leave out "subsection (3) or (4)" and insert "subsections (3) to (4B)"
	Amendments 76A to 76C agreed.
	Amendments 77 to 88 not moved.
	Amendment 89
	 Moved by Lord Eatwell
	89: Clause 3, page 14, line 12, at end insert-
	"9WA Financial Stability Advisory Panel
	(1) There will be a Financial Stability Advisory Panel.
	(2) The membership of the Panel will be-
	(a) the Deputy Governor for Financial Stability;
	(b) 6 members appointed by the Treasury, subject to approval by the Treasury Committee of the House of Commons;
	and the members appointed under paragraph (b) will be academics, members of staff of international organisations, practitioners, or others with particular skills in the analysis of systemic risk.
	(3) The Financial Stability Advisory Panel will-
	(a) provide written advice to the Financial Policy Committee concerning the analysis of systemic risk;
	(b) once a year prepare a report assessing the analysis of systemic risk by the Financial Policy Committee over the preceding 12 months (the first report to be twelve months after this section comes into force);
	(c) assess the effectiveness of measures prescribed under section 9K in the attainment of the financial stability objective of the Bank;
	(d) assess the effectiveness of directions and recommendations of the Financial Policy Committee under sections 9G and 9N in the attainment of the financial stability objective of the Bank;
	(e) prepare an annual report on matters referred to in section 9WA(3) to be presented by the Supervisory Board of the Bank, and subsequently published on the Bank website."

Lord Eatwell: My Lords, the development of macroprudential regulators, the instruments for introducing macroprudential regulation, is a common theme in the UK, the European Union and the United States. Different models have been developed for the institution that is to be responsible for macroprudential regulation. In our own model, the Financial Policy Committee, we see what could be called a "central bank model", where the alternative voices being brought to the table are to be represented by the independent members of the FPC. It will fall to them to challenge Bank of England house thinking and provide alternative perspectives. There is only a very small number of external members on the FPC and finding members with the experience and skills necessary to perform the role that we demand of them is, as has already been seen, very difficult, although at the moment we have an excellent group in the shadow FPC. An alternative model, which has been adopted by the United States Financial Stability Oversight Council, pursues a more stakeholder-oriented approach in which the appropriate voices from stakeholders actually have a direct role in the organisation of macroprudential measures within the United States.
	Both the central bank model that we have pursued, which also applies to the European systemic risk board, and the stakeholder model have disadvantages. The key disadvantage of our central bank model is that we do not have enough diversity of opinion or access to new research and critical assessments of FPC measures that the stakeholder model might have. The problem with the stakeholder model is that the United States may find that its Financial Stability Oversight Council becomes mired in differences of opinion from different stakeholder interests and has difficulty in pursuing the coherent macroprudential policy that is required of it.
	As we know, this whole area is, as I said earlier, an experiment-or, if the Minister prefers, a project. We are dealing with areas and matters that at present are uncertain. There is little agreed analysis or clear empirical assessment of how some of these tools will actually work. We will find out. We are going to experiment. We therefore need to harvest the widest possible spectrum of analysis. The amendment proposes that there should be a financial stability advisory panel, not a panel that is intimately involved in designing and implementing the measures. Those independent voices are provided by the independent members of the FPC but they are necessarily compromised by their role in dealing with very sensitive matters as they might have conflicts of interest if they have a wider role in the financial services industry. The financial stability advisory panel could contain individuals with such conflicts of interest because they would not have a role in actually managing the macroprudential organisation of the FPC.
	The amendment suggests that we have this financial stability advisory panel providing that diversity of view from academics, perhaps from members of staff of international organisations such as the Bank for International Settlements, which is making a lot of the running in the development of macroprudential tools, and potentially from others who have particular skills in the analysis of systemic risk. It will be their responsibility to provide written advice to the FPC, prepare an annual assessment of the FPC's performance, look at the effectiveness of individual measures and assess the effectiveness of particular directions and recommendations in the context of an annual report or assessment. This cannot do anything but good. It is simply an institutionalisation of the detailed examination, the variety of voices and the consideration of effectiveness that are so necessary in providing both coherence to the FPC and its general acceptance. A panel of this sort, given the responsibilities that are set out in the amendment, would add significantly to the effectiveness of the Financial Policy Committee. I beg to move.

Lord Stewartby: My Lords, I was interested to hear the comments from the noble Lord, Lord Eatwell, on the nature of the work that will face the panel. It sounds like something that overlaps considerably with the Board of Banking Supervision in the late 1980s. Obviously that was working in different circumstances, but each of the bodies require, or required, people of an unusual stripe who combine a practical experience of banking, and the difficult areas that it brings with it, with a particular canniness in identifying areas where they think that things are not as they should be, particularly in cases where that is not always evident until later when events have already taken place.
	Are the would-be members of the panel now shadowing the work that will be theirs in statutory form as a result of the Bill? It is terribly important to get the people involved carrying a great deal of weight and clout but at the same time having inquiring minds-something that will help us to ferret out areas that have been unsatisfactorily dealt with. I will not say more now, but I am pleased that some of the reasons for having a panel such as this-20 years ago or more was called the Board of Banking Supervision, or the BoBS-have been recognised as important in today's different but difficult circumstances.

Lord Davies of Stamford: My Lords, I have considered carefully over the last 24 hours whether I should say what I am now about to say to the House, but I have decided that it is right to. My noble friend's amendment, which I support in principle, says in proposed new Section 9WA(2)(a):
	"The membership of the Panel will be ... the Deputy Governor for Financial Stability".
	In light of his answers yesterday to the Treasury Select Committee, it is completely wrong that the present deputy governor for financial stability should be given these responsibilities on this financial advisory panel, or any other responsibilities for financial stability. In the course of the performance yesterday, during which I assume that his answers were entirely honest and frank, he effectively made a plea of guilty to incompetence and complacency at a quite heroic level. He admitted having chaired a meeting at which several people said that there had been discrepancies between the LIBOR rate and the rate at which banks had been paying for deposits on the interbank market. In his defence yesterday, he said he thought that some of those discrepancies might have been due to transactions intermediated through brokers, but he did not ask what the position was. He did not pursue it. He did not make an attempt to discover what the real facts were. That was astonishingly negligent, to put it mildly.
	The other incident, the conversation that he had with Mr Diamond of Barclays, which has been so much in the public mind in the last week or so, also casts a strange light on his actions in carrying out his responsibilities in the Bank of England. He said that he was under great pressure at the time and that there was a great financial crisis, so much so that he was not able to make a note of even very important telephone conversations. I assume that the conversation was not a casual one, but that it was deliberate and designed to achieve a particular purpose. The only purpose that it could have achieved, and the only effect that it could have had, would have been to have persuaded or encouraged Barclays to understate the cost that it was paying for deposits on the interbank market. Clearly, Barclays could not do anything about the actual cost that it was paying. It would have been taking on deposits at as low an interest rate as possible. There have been some strange things going on. I have little confidence in the personality of the present deputy governor of the Bank responsible for financial stability.
	There is a defence of his actions which noble Lords might have seen in yesterday's Financial Times. It was the first letter in the paper, with the heading going something like "Tucker and Barclays saved the British financial system". The argument was that it was correct in difficult circumstances, when banks were being squeezed on the interbank market or the interbank market was drying up, to give a false impression of what was going on by recording and publishing false LIBOR statistics. I do not accept that defence. First, it is not a defence that either Mr Diamond or Mr Tucker is making. Secondly, even if it were their defence it would be wrong. It is important that no financial stability organisation or anyone concerned with financial stability should be tempted to believe that by falsifying statistics in a difficult situation that is contributing to a solution. That risks undermining not merely the credibility of the index that you are falsifying, but every announcement and index. If the Bank of England was prepared to collude with a clearing bank to falsify the LIBOR statistics, the markets would immediately assume that collusion might take place if it was convenient in other circumstances, and that perhaps regulators and banks would collude to understate their provisions. As soon as that rumour or suggestion got about, there really would be a crisis.
	That is a road down which no one should go. I do not accept that defence of Mr Tucker's actions. It is not of course the defence that he has been making. He has no defence because he has confessed to an extraordinary act of negligence. Had he not undertaken it, had he not let that meeting go past-and yesterday there were suggestions that at the time he had other evidence that the LIBOR market was not as straight and transparent as it ought to have been-the crisis that we have experienced recently would not have occurred. I am sorry to have to make these harsh comments about a man whom I have not met and whom I had not heard until I listened to his evidence yesterday. However, in present circumstances, it seemed to me important that if one felt sufficiently strongly about such a matter one should raise it in the House.

Lord Myners: My Lords, I take note of my noble friend's comments, but I feel compelled to say a few words in response. Without drawing the ire of the Minister, I can link it back to the subject of the amendment.
	I worked with Mr Tucker, the deputy governor, during the banking crisis. We should wait for the outcome of the Treasury Select Committee's report and the Joint Committee report. It is wrong to say that if the manipulation of the LIBOR-setting process had not occurred we would not have had the global financial crisis. It was undoubtedly bad and reprehensible, in the words of Mr Diamond, but it did not itself cause the crisis. Listening to Mr Tucker yesterday and reflecting back on the extraordinary circumstances of October 2007, I sympathised with him. The banking system was on the verge of complete collapse. It is still not fully appreciated how close we came to the edge of the cliff. In those circumstances, when one seemed constantly to be in meetings and constantly to be on the telephone, not taking notes of meetings is pretty forgivable. I was delighted that Mr Tucker was able to settle the issues arising from Mr Diamond's file note about the senior Whitehall figures. I look forward to the Chancellor of the Exchequer responding to the clarity that Mr Tucker has brought there.
	Reflecting on my noble friend's amendment, I ask whether we are creating positions in the Bank of England and in the architecture which are simply beyond the talents of any one person to fulfil? Mr Tucker is one of the outstanding candidates to be the next governor. He is not the only one, but it is not a long list and it has got decidedly shorter in the past seven days. Two people previously spoken about as candidates, Mr Varley and the noble Lord, Lord Green, have probably dropped off in the past few days, so it is not a strong list.
	Looking then at the FPC and its oversight, where are going to find the people with the necessary talents to do this job? We are on the horns of a dilemma. On the one hand, you want knowledgeable people-people who do not have to be taken through everything step by step, but come to the issues with a good and clear knowledge and the ability to spot where the critical questions lie. On the other hand, you do not want to start these committees with people who in some way are conflicted by their current employment, their past employment, their pension arrangements and so forth.
	I do not have a view about whether the shadow FPC is doing a good job. I think one or two of its members appear to be. Mr Robert Jenkins, in particular, appears to be an independent spirit who is not in any way caught up in the groupthink and consensus that I associate with much of the heart of the Bank. The simple fact is that most members of the FPC have a career background in investment banking. They have a career background in the very activity which was associated with the global financial crisis. I think we have a problem here. How do we get the right people into the right committees and the right courts and the offices of governor and deputy governor? No architecture makes sense if we are creating it on the presumption that we can find people of integrity, raw talent and understanding to fill the jobs when that is not a realistic assumption. I think the heart of the matter raised by my noble friend in his amendment is: how can we be satisfied that the people sitting on the FPC are appropriately competent and are managing conflicts of interests, as they probably will always have conflicts as a prerequisite for qualification to sit on these various committees?

Lord Liddle: My Lords, that was a very interesting exchange between my noble friends Lord Davies and Lord Myners on the crucial question of how these matters should operate. I would like to add a point in favour of my noble friend's amendment on the basis of work I have done on how the new European system is operating. I had a conversation in Brussels recently with André Sapir, who is on the board of the European Systemic Risk Board, about the role of independent economic expertise in assessing systemic risk. On that board, the independent economists have made a decision that they will not rely on the internal expertise of the European Central Bank, precisely for the reason that the noble Lord, Lord Eatwell, said. We are operating in a very uncertain world and no one really knows what the right road map is. What we need is the maximum amount of well informed, independent expertise on these matters. I feel very strongly that this amendment should be supported.

Lord De Mauley: My Lords, before I start on the amendment, I shall say in response to the noble Lord, Lord Davies of Stamford, that the deputy governor for financial stability is a very fine and highly respected deputy governor. As the noble Lord, Lord Myners, said, it is for the Treasury Select Committee to assess what he said yesterday.
	Turning to Amendment 89, it would create an advisory panel with a two-fold brief: first, to advise the FPC on systemic risks to financial stability; and, secondly, to assess and report upon the effectiveness of the FPC in assessing systemic risks to financial stability, the macroprudential tools provided by the Treasury to the FPC and the actions taken by the FPC. The membership of the panel would include the deputy governor for financial stability and a number of external members appointed by the Treasury, drawn from a range of relevant professions, including academia.
	The Bill already creates, in the FPC, a committee on which the deputy governor for financial stability sits, together with external members, some of whom may indeed be academics. The noble Lord, Lord Eatwell, was good enough to compliment the external members of the interim FPC. Let me give some details of the specific expertise of the current external members to give a flavour. Alastair Clark has, in addition to extensive real-life experience, degrees from Cambridge and the LSE and is an honorary visiting professor at the Cass Business School. Robert Jenkins, who the noble Lord, Lord Myners, referred to, not only has extensive experience of trading and asset management but is also an adjunct professor at the London Business School. Donald Kohn, in addition to extensive experience in financial regulation in the US also has academic experience. Michael Cohrs has experience at senior level in the private sector in investment banking but is also a Harvard MBA and an adjunct professor at Beijing University. We want, and we have, multifaceted people. We agree with the noble Lord regarding the need for extensive broad experience, including academic experience, but we do not think this needs to be set down in legislation.
	The additional construct of the advisory panel would not add to the Government's proposals. I think the noble Lord, Lord Myners, is right that what is important is that we get the FPC right. If the FPC wants to take advice, it is entirely able to do so, but it should have the autonomy to do so on its own terms if it is to be properly responsible for financial stability. It might be argued that the advisory panel will fulfil an important function by assessing the performance of the FPC. Like the MPC, the FPC's primary route of accountability is directly to Parliament, including to the Treasury Select Committee, which holds it to account via scrutiny of its published meeting records and financial stability reports. In addition, the Bank's newly created oversight committee will be responsible for overseeing the FPC's performance and will have an explicit remit for commissioning and publishing a review into the FPC's policy performance.
	I have two further concerns with this aspect of the amendment. First, it seems odd that a committee chaired by an executive of the Bank who is a member of the FPC and responsible for providing advice to the FPC should also be expected to assess its performance. Secondly, and more importantly, the Government have already brought forward amendments, which were debated and agreed two weeks ago, to create the independent oversight committee that I just referred to with responsibility for carrying out performance evaluation. So in this respect, too, the effect of the amendment would be to duplicate responsibilities, blur accountabilities and diminish focus, so I ask the noble Lord, Lord Eatwell, to withdraw the amendment.

Lord Myners: The Minister used the word "independent" on several occasions relating to oversight. Noble Lords will remember that when the Monetary Policy Committee was established, there was quite a brouhaha about whether the independent members of that committee should have access to independent advice. The Bank resisted that so the independent members had to rely upon the Bank's own economists. It was only after a threat of resignation by one of the independent members of the MPC that they were granted the ability to appoint, I believe, a single researcher.
	The culture of the Bank does not foster independence. It is a very hierarchical organisation. The view of the Bank is the view of the governor. The court has recently announced three independent reviews into aspects of the Bank's conduct. They are all quite interesting because they date from October 2008. None of them will actually look at the real errors that were made by the Bank, which were pre-2008. We really want to ask what the Bank was doing in 2006 and 2007. These reviews exclude any examination of Northern Rock, and I think one could argue that if it had been handled in a different way, it might have had some impact on how the UK was impacted by the global financial crisis.
	I put down a Question on these independent reviews. The independent reviewers were appointed through a process led by the governor. The independent reviewers do not have their own secretariat. They are reliant upon the Bank's staff for support, so I put it to the Minister that for this approach to operate, it is important that the FPC has access to truly independent advice. In my view, advice that comes from career employees of the Bank can never have that element of total independence that is necessary in order to achieve the objective that I believe the Government have for the FPC and which my noble friend has at heart when proposing this amendment.

Lord De Mauley: I will, if I may, respond on that point. The noble Lord, Lord Myners, is right, and my noble friend Lord Sassoon acknowledged earlier, that previously the Bank was slow to recognise the MPC external members' need to have access to dedicated support. The Bank has learnt its lesson.

Lord Eatwell: Gosh, that is a bold statement. In replying to the comments made by the noble Lord, Lord De Mauley, I would point out that he has overlooked two crucial elements that underpin the logic of this amendment. First, there are indeed highly skilled and independent members of the Financial Policy Committee, but they are involved in making the decisions and the recommendations. They are the organised part of the organisation which will in due course be responsible for what happens. They are not in any sense an evaluative mechanism. They are adding grist to the mill of a decision-making mechanism; an evaluative mechanism is a different thing altogether.
	Secondly, the noble Lord referred to the role of the new oversight committee. I would remind Members of the Committee that the oversight committee will be composed of members of the court; it will not be anybody outwith the internal structure of the Bank. I am enormously disappointed-the most disappointed I have been with anything I have done in relation to this organisation-that the Government have not taken this on board. We are trying to formalise a continuous process of debate, review and assessment by people who have high levels of skill in this area but who are not otherwise involved. That is what a truly effective advisory panel should do. I was struck by my noble friend Lord Liddle's comments on what is happening at the European Systemic Risk Board. As the noble Lord, Lord Stewartby, said, we want people with the right sort of skills doing this sort of assessment. He is absolutely right.
	I ask the Government to think again on this issue. This area can contribute significantly to the overall success of the FPC. I assure the Government that I will return to this matter at later stages, but for now I beg leave to withdraw the amendment.
	Amendment 89 withdrawn.
	Clause 3, as amended, agreed.
	Amendment 90 not moved.
	Schedule 1 : Bank of England Financial Policy Committee
	Amendments 91 to 96
	 Moved by Lord Sassoon
	91: Schedule 1, page 170, line 11, leave out "Bank" and insert "Oversight Committee"
	92: Schedule 1, page 170, leave out lines 12 to 14
	93: Schedule 1, page 170, line 32, leave out "Bank" and insert "Oversight Committee"
	94: Schedule 1, page 170, line 35, at end insert "Financial Policy"
	95: Schedule 1, page 170, line 42, leave out "Bank" and insert "Oversight Committee"
	96: Schedule 1, page 171, leave out lines 3 to 5
	Amendments 91 to 96 agreed.
	Schedule 1, as amended, agreed.
	Clause 4 : Further amendments relating to Bank of England
	Amendment 96A
	 Moved by Baroness Hayter of Kentish Town
	96A: Clause 4, page 14, line 35, at end insert-
	"( ) Within a year of commencement of this Act, the Bank of England shall publish a review of the effectiveness of coordination by the regulators of the exercise of their functions relating to membership of, and their relations with, the European Supervisory Authorities (namely, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority), and their relations with other regulatory bodies outside the United Kingdom."

Baroness Hayter of Kentish Town: My Lords, Amendment 96A stands in my name and that of my noble friend Lord Eatwell. Despite the increasing importance and powers of the new European Systemic Risk Board and its three ESAs-including, on occasion, the power to override our own regulators-the Bill's new architecture does not map with theirs. So while Europe cuts by area-with a committee for banking, one for securities and markets and one for insurance and occupational pensions-the Bill divides between prudential and conduct. As AXA warns,
	"There is a significant danger that the new structure will diminish the UK's capacity to influence European regulators as",
	our,
	"new ... bodies will be organised along different lines to the European Supervisory Authorities".
	London First, which represents over 200 of London's leading employers, including many in the financial world, expresses similar concerns about the new framework not mapping onto that of Europe. While it welcomes the establishment of an international co-ordinating committee, it remains worried about the committee's effectiveness unless it is appropriately resourced and staffed.
	We have ceded powers to the EU on many areas of financial services regulation, but there are areas where we may want to retain powers; for example, to impose higher capital requirements on banks. There are also areas for future negotiation where it is imperative that we give leadership and have a good negotiating stance and team in order to have a good outcome. That depends on good preparation within domestic regulators-and that will require considerable co-ordination, which we will rely on a committee to produce.
	Our own European Union Committee warned about the mismatch between our new structure and that of the ESAs last July, but the Government did not appear to take much heed of the potential problem. Perhaps the Government are right, and whichever way one cuts and divides, there will not be a brilliant fit. However, given the Government's commitment to,
	"ensuring that the UK authorities ... take a leadership role in the ESAs",
	and given the importance of Europe in regulating, in standard setting and in influencing our financial regulators, it might be wise to have a built-in review to check whether we have got it as good as it could be, and to give this House and the other place a chance to see whether any adjustments are called for in the light of experience.
	The Governor of the Bank of England has said that the new architecture is,
	"a bit by way of an experiment".
	He went on to say that we,
	"need to experiment and see how it evolves"
	in regard to the whole schema, which he thought should be revisited after five years. In the case of our relations with the European bodies, however, we cannot wait that long. Decisions are being taken even as we meet.
	These overlaps-or underlaps-are not theoretical. We know that Michel Barnier, the EU Commissioner overseeing financial services, is to amend EU market abuse rules in the light of the LIBOR scandal. Much of this work will overlap with the probe led by Martin Wheatley of the FCA which is examining almost the same issues. While the EU initiative is likely to complement Mr Wheatley's conclusions on whether to apply criminal penalties to the manipulation of LIBOR or any other indices, there is potential for a clash over whether to regulate this or other indices.
	Clear, focused input into EU thinking is therefore essential for the UK markets. We must ensure that we have the processes and structures right to make sure that those decisions suit our needs. This amendment seeks the information needed to help us assess what adjustments might have to be made to ensure that the decisions taken both here and in Europe really are as good as they can be. I beg to move.

Baroness Noakes: My Lords, I completely take the main thrust of the noble Baroness's amendment, which is that the lack of mapping of our structure onto the European regulatory structure potentially creates problems. We have certainly heard from bodies in the City that they also are concerned that the particular issues that arise in their areas might not be well represented. There is a particular concern about the FCA and ESMA, given the FCA's inevitable consumer centre-of-gravity and the perceived problem of issues relating to proper representation of the markets in Europe. So I completely buy the need to keep this under review. I question, however, whether the Bank of England is the right body to do that. If we need to hard-bake some kind of review process into the Bill, the review ought to be done by the Treasury, because it is the Treasury that could do something about it if it is not working well.

Lord Flight: My Lords, it strikes me that this amendment points an important finger at a number of territories. In some ways the mismatch concerns me less; there are always likely to be mismatch problems. For starters, I was disappointed that the previous Government, as it were, gave away power in the territory of financial regulation to Europe. Substantial things are happening: we have MiFID 2; the banking supervision proposals; and, following on from those, the recent proposals arising from greater European economic and financial union. First, I would like to know that the UK parties batting for the UK are doing a good job and have raised all the issues. Secondly, I agree with the noble Baroness, Lady Noakes. I am not certain whether this is a Treasury or a PRA matter but the PRA at least has the lead for the regulators in negotiating with the EU bodies. I should like to know how the Bank of England thinks it has done in dealing with the issues and protecting British interests.
	The MiFID 2 proposals are coming up and I think that they could be extremely damaging to the UK if they went through as presently proposed. A lot of work needs to be done for them to be workable. If there were no public review or airing of what has been going on and the issues, it would perhaps be-in a fast-changing territory-somewhat undesirable. However, I am not quite sure what the right mechanism is for achieving what I seek to achieve.

Lord Liddle: My Lords, I rise briefly to support my noble friend Lady Hayter's amendment. She has drawn attention to a crucial issue for the United Kingdom. The fact is that we benefit greatly from the existence of the European single financial market. I believe that one of the reasons why so many overseas banks base themselves in London is that we are part of a single regulated market. There are grave dangers for us in going down the road of separating ourselves from that single market.
	It is important that we keep very closely in touch with European developments at all times. It is a very fast-moving scene. As we understand the results of the last European Council, banking supervision within the eurozone will be put under the European Central Bank by the end of this year. I noted with interest the Governor's comment, as reported in the Financial Timesat any rate, that this would make it easier for the Bank of England to deal with regulatory issues because there would be, as it were, a single telephone number to ring in the European Central Bank. It is also the case that the UK has a critically important influence in the European Systemic Risk Board. It is vital that we play a crucial role in that board, of which the Governor of the Bank of England is the deputy chair.

Lord Sassoon: I think that he is the first deputy chair.

Lord Liddle: Britain's position is given a special status given that we are the financial centre of the European single market. The governors of the central banks who make up that body are alive to London's concerns at all times. It is very important that we play a major role there. It is therefore crucial that we keep these issues under review. I do not think that the way in which the Government have handled the proposals for a banking union is in the UK national interest. It is a bit rich to say, "It is none of our business because this is to do with the eurozone", but then to complain that the creation of this thing might mean that there was an inbuilt majority against Britain on all financial regulatory decision-making. It is rather contradictory.
	The position we have to adopt is that although we are not in the eurozone and will not be in the eurozone, we have to sustain the single financial market. That involves us having the closest possible relationship with the relevant European bodies and keeping abreast, in terms of our own arrangements, with developments there. For those reasons, I strongly support my noble friend's amendment.

Lord Davies of Stamford: I also strongly support my noble friend's amendment, which was very well conceived and-if I may say so-very persuasively moved. I also agree very much with my noble friend Lord Liddle in the way that he approaches this problem. I think that there are four major issues on which the House needs to ponder carefully. The first is the emerging mismatch between the evolving structures in financial regulation on both sides of the channel. Something has already been said about that so I will not go into it any further.
	The second issue is subjective, but I fear that it is very difficult to deny. It is our declining influence in matters of financial regulation and supervision around the world. Many of us can remember a time when the British were regarded as great experts in these things. We obviously were brilliant because we had such a successful financial services industry. Therefore, when we said something about financial regulation, supervision or the right way of creating a framework for a thriving financial services industry, whether it was said in Washington, New York, Brussels or Frankfurt, it was listened to with great attention. We naturally had a very strong influence. I am sorry to say that a combination of the Euroscepticism of this new coalition Government and our recent failings in financial regulation and supervision-one thinks of the failings of the FSA in matters of RBS and so forth, and now the terrible and very upsetting scandal of LIBOR fixing, which I will not go into any further-inevitably will, and is, undermining the influence that we used to have. That is a very worrying situation.
	There is, thirdly, the competitive issue, which we will come on to in later amendments. It is quite clear that as the framework for financial regulation diverges between this country and the continent, there is always a danger of competitive advantages changing, and possibly not in our favour. One of the obvious examples of which people are well aware is the possibility of lower capital-adequacy ratios on the continent. Presumably, particularly in the light of the crisis that we have all been through, they will always be set at a fairly sensible prudential level. However, there may be significant differences-for example, in retail deposit insurance schemes-which would lead people to want to hold their accounts on the continent rather than here. All kinds of things could emerge from regulatory and supervisory initiatives that would change the competitive balance. We need to be very alert to that.
	Finally, the jury is out on whether or not it is in the national interest for us to be part of the emerging European banking union. I can see a great many theoretical reasons why it might be very strongly in our interest to join, but I do not have the slightest hope of persuading colleagues in the House today of that. Indeed, I am happy to wait and see, but we need to keep the matter under review. The regular review which my noble friend proposes in this amendment is exactly the kind of procedure and discipline that we want.
	All British institutions involved should be aware that they are being reviewed in this matter; that their collaboration and effective participation in European structures is being watched; that they are expected to use their influence as effectively as they can on our behalf; and that they should be very conscious of the role they are playing. All that is very important and we need to monitor the results. We need, a few years after it comes, to be able to look back over the record as revealed by these reviews and otherwise-quite pragmatically and open-mindedly, without dogmatism or emotionalism-and to take a rational decision on the best way of achieving the national interest going forward.

Baroness Cohen of Pimlico: I support the amendment proposed by my noble friend Lady Hayter. Not only are we poorly mapped on to the new European financial regulators, but we are poorly represented in relation to our weight in financial services in Europe. We are under-represented, in fact. We are where we are, but this is one of the areas on which, in a year's time, it would be useful to have a review and to see how best we might change or adjust our position, either by adjusting our own institutions, or by hoping to make greater progress in Europe. However, financial services are key to this country. Immense amounts of regulation being debated in Europe at the moment, and we are not quite in the best position to be doing all this. I very much welcome the idea of a review in a year.

Lord Neill of Bladen: My Lords, I have one comment to make on the text of the amendment. Just to have a report for one year seems such a limited objective. If it is worth doing at all, I do not understand why there is no language allowing for continuity. It was said that the noble Baroness, Lady Hayter, was providing for that. However, the actual language is:
	"Within a year of commencement... the Bank of England shall publish a review",
	et cetera. It is to be a one-off. The idea is a good one. Have a regular review, and you can see whether things change. Whether it is going to be embarrassing for the governor, representing the Bank, to say what his relations are with all the other regulatory bodies outside the UK, I do not know. A case could be made for an independent body to produce this. However, the governor and the Bank probably have the information that is needed.
	I add as a footnote that we need to keep in mind the terrible damage that has been done by the LIBOR scandal. There was an article in the Independent last week deploring the damage that it will do to the good name of the financial industry in this country. They are the sort of factors that are rather important.

Lord Sassoon: My Lords, we have had an interesting run-around this issue. There have been quite a few divergent voices about the way of handling the challenge that is the subject of this amendment.
	First, I certainly did not read this amendment as relating to the mapping of the UK structure as it will be against the European structure, because the start of this amendment talks about,
	"a review of the effectiveness of coordination... and their relations with, the European Supervisory Authorities".
	This seems to go very much with the responsibilities under the co-ordination memorandum. I have a bit of trouble in my mind matching this up with the substantive concern of the noble Baroness, Lady Hayter of Kentish Town, which I understand.
	I start with the question as to whether the UK architecture does or should adequately map against the new European supervisory authorities. I do not believe it is necessary for the responsibilities of domestic regulators to exactly map on to the corresponding ESA for engagement with them to be effective and well co-ordinated. The regulatory systems of other EU member states do not match up with the activities-based structure of the ESAs. Of course, as has been discussed already, the European architecture is itself likely to be moving around, so that we are probably not going to be aiming at a fixed target. Although it has been stated that the City has had some concerns about the mapping, the broad consensus in the evidence given to the Joint Committee was that having a different regulatory structure to that of the ESAs, will not present any issues for the UK authorities in representing the UK's interests. The Government have accepted the recommendation of the Joint Committee, and the Bill requires that the international organisations' MOU establishes an international co-ordination committee, so we have fully responded to the concerns of the Joint Committee in this area.
	I do not believe that the noble Baroness, Lady Cohen of Pimlico, is right to say that we are under-represented. For example, the FSA's senior officials have very important positions within ESMA. We have already heard that the governor of the Bank of England is the chair of the European Systemic Risk Board. As the noble Lord, Lord Liddle, pointed out, the special position of the UK is represented in that way. So we should not undersell the way we are getting on now, or overstress the need for an exact mapping, which was not found to be necessary by the Joint Committee. Nevertheless, I absolutely agree with the noble Baroness in moving this amendment that clear, focussed input to EU discussions is absolutely essential-I think that was how she put it.
	The question then is, how much scrutiny will there be, and how will we know how effective this has been? The noble Baroness suggested a review within one year. The noble Lord, Lord Davies of Stamford, talked about a review after a few years. The noble Lord, Lord Neill of Bladen, suggested that if it is worth doing once, we should do it every year, or at least periodically. There is a wide divergence of views on how often it should be done. Perhaps more importantly is the question of who should do it, and whether there are other ways in which it will be done without this amendment. I agree with my noble friend Lady Noakes-the point was also indirectly made by my noble friend Lord Flight. If anybody should be responsible for ensuring effective co-ordination on international matters, it should be the Treasury, not the Bank because, as my noble friend says, it has the powers to do something about it. The Treasury will also be in the chair of the international co-ordination committee, which the Joint Committee asked to be established. If anybody should do it, it should be the Treasury.
	My noble friend Lord Flight also talked about the Bank having primacy-that was not exactly his word-in taking most of the strain in the interface with Europe. However, as my noble friend Lady Noakes said, the FCA has a very important relationship with ESMA. It is difficult to say who is going to be taking more of the strain; it will depend partly on which directives are being negotiated at the time.
	I agree with the noble Baroness and my noble friends that light needs to be shed on this. Let me say how this will be done. First, Schedule 3 to the Bill requires the new regulators to include in their annual reports an account of how they have complied with the international co-ordination duty. That will be the first line of public reporting. Secondly, the National Audit Office will have the ability to investigate and report on the economy, efficiency and effectiveness of both regulators and to lay those reports before Parliament. Thirdly, the Treasury Committee may also wish, and is likely to want, to undertake periodic enquiries into the effectiveness of the regulators regarding their interactions with international bodies.
	I believe there are comprehensive provisions that will hit the right target. The noble Baroness raises an important issue. I am glad we have had a chance to discuss it, but I would ask her to withdraw her amendment.

Baroness Hayter of Kentish Town: First, I thank those who have contributed to the debate and have spoken very much, I think, in support of what I have been saying. I thank the noble Baroness, Lady Noakes, the noble Lords, Lord Flight and Lord Neill of Bladen, and my noble friends Lord Liddle, Lord Davies and Lady Cohen.
	I am surprised that the Minister did not quite know what was coming. I said all this in my Second Reading speech, which I thought would be a little clue to what this was going to be about. However, I think that there is wide acceptance of the mismatch between the new architecture and what exists across the water. The Minister said that there were divergent voices. I do not agree. I think everyone is saying that we need to look at this issue. The noble Lord, Lord Flight, may be right that it would be better for Her Majesty's Treasury to do it rather than the Bank of England, but that is quite a small point compared with the thrust of the amendment, which is that this matter needs to be reviewed.
	This issue raises quite important questions, as I saw when I helped to regulate actuaries. Many of the rules were written down in Europe through CEIOPS, as it was called at the time. We did not have direct access to CEIOPS; we had to go to the FSA, which was our representative on it, and that made the negotiation much more difficult. Therefore, this is not an easy matter and it will be very important to review how the international co-ordination committee is coping, how effective our input is, whether what we are doing really is sustaining and enhancing the single financial market and whether we are properly, adequately and well represented on it.
	The noble Lord, Lord Neill of Bladen, may well be right that a regular review is needed. We proposed a one-off review because our domestic architecture is new and it may need some adjustment. However, the Minister is right: it is an EU moving target, so it may well be that a review will be required more often.
	I hear what the Minister says about the NAO looking at this and the possibility of reviews by the Treasury Select Committee. However, it seems to me that the commitment to produce the evidence should come from the Treasury rather than the Bank of England, and any of those bodies could then take a view on the information. In particular, it needs to be automatically brought before Parliament so that this House and the other place are able to opine on whether adjustments should be made.
	I am very happy to withdraw the amendment at this stage but I hope that we will be able to come back to this matter to look for an appropriate way of building in a review. I beg leave to withdraw the amendment.
	Amendment 96A withdrawn.
	Clause 4 agreed.
	Schedule 2 : Further amendments relating to Bank of England
	Amendments 97 and 98
	 Moved by Lord Sassoon
	97: Schedule 2, page 174, line 3, at end insert-
	"(8A) After paragraph 12 insert-
	"Publication of record of meetings
	12A (1) The Bank must publish a record of each meeting of the court-
	(a) before the end of the period of 6 weeks beginning with the day of the meeting, or
	(b) if no meeting of the court is subsequently held during that period, before the end of the period of 2 weeks beginning with the day of the next meeting.
	(2) The record must specify any decisions taken at the meeting (including decisions to take no action) and must set out, in relation to each decision, a summary of the court's deliberations.
	(3) Sub-paragraphs (1) and (2) do not require the publication of information whose publication within the time required by sub-paragraph (1) would in the opinion of the court be against the public interest.
	(4) Publication under this section is to be in such manner as the Bank thinks fit.""
	98: Schedule 2, page 174, line 3, at end insert-
	"(8B) In paragraph 14(1), for "it" substitute "the Oversight Committee"."
	Amendments 97 and 98 agreed.
	Amendment 98A
	 Moved by Baroness Kramer
	98A: Schedule 2, page 174, line 3, at end insert-
	"( ) In paragraph 13, for sub-paragraph (3)(a) substitute-
	"(a) a director of the Bank to chair its meetings ("the chair of the Court"), and"."

Baroness Kramer: My Lords, I think that I can be very brief in moving this amendment. Its purpose is to close a gap between the Government's clearly stated intent and the language in the Bill. I am sympathetic to those who have drafted the language, because the complexities of the Bank of England Act 1998, as amended by the Banking Act 2009, make it quite hard to follow through a single train of thought, and I suspect that that is what has caused a trip-up in the language in this instance.
	On the first day in Committee on this Bill on 26 June, the Minister was absolutely clear that the oversight committee-whose existence and procedures he put forward and the Committee accepted-should be made up of non-executive members of the Court of the Bank of England, and that its chair should also be a non-executive member. However, the language in the Bill does not allow that train of thought to follow through. It would permit the Chancellor to appoint the governor or deputy governor to the role of chair of the court and hence see that individual put into the position of chair of the oversight committee. I shall not bore the Committee at this point by trying to track through that but I assure noble Lords that that is the consequence of the current language. I simply say to the Government that I hope that someone can go away and fix this more elegantly than I have been able to do and, on that basis, I shall not be pressing the amendment.

Lord Sassoon: My Lords, I do not know whether anyone else wants to come in on this but it may be helpful if I speak now. This amendment in the name of my noble friend Lady Kramer returns us, as she says, to the territory of not only Bank of England governance but nomenclature, which we discussed at some length two weeks ago. As my noble friend says, one of the changes made in the Banking Act 2009 was intended to amend the Bank of England Act to require the court to be chaired by a director, which, as we established two weeks ago, means a non-executive member-again, as my noble friend pointed out. However, she has gone further because it is only my noble friend, with her razor-sharp eye, who has noticed that the relevant provision inserted into the Bank of England Act 1998, while allowing the court to be chaired by a director, does not require that it be so. That is clearly not correct.
	Therefore, although I cannot accept the amendment as drafted because it does not cover all the necessary ground to give full effect to this change, I assure my noble friend and the Committee that we will go away and draft the necessary changes. I thank my noble friend for bringing this to the Committee's attention.
	More generally, I am aware from the discussion that we had two weeks ago that there are some irregularities in the terminology in the Bank of England Act which I certainly had difficulties with and I think that other Members of the Committee did too. A prime example of this is that the so-called Court of Directors includes the executive members of the court who are not, and cannot be, directors. This is plainly absurd. To say that this is all justified because the Bank has been in existence for 300 years so we just have to live with it is not the right approach. As I think I wrote following the first day in Committee, I will consider further whether any other changes might be made to the 1998 Act to clarify these terms, making them more consistent with current usage. We cannot proof the legislation against further changes over 300 years but we can at least try to update a few things.
	With thanks to my noble friend, I ask her to withdraw her amendment, as she has already indicated she will do.

Baroness Kramer: I beg leave to withdraw the amendment.
	Amendment 98A withdrawn.
	Amendments 99 to 101
	 Moved by Lord Sassoon
	99: Schedule 2, page 174, line 4, leave out "No provision of this paragraph" and insert "Nothing in sub-paragraphs (2) to (6)"
	100: Schedule 2, page 174, leave out lines 34 to 38 and insert-
	"(b) for sub-paragraph (2) substitute-
	"(2) The terms and conditions on which a person holds office as a member of the Committee appointed under section 13(2)(c) are to be such as the Oversight Committee may determine.", and
	(c) omit sub-paragraph (3)."
	101: Schedule 2, page 174, line 42, at end insert-
	"(7A) In paragraph 9-
	(a) in sub-paragraph (1)-
	(i) for "Bank" substitute "Oversight Committee", and
	(ii) in paragraph (a), for "the Committee's meetings" and "the Committee's consent" substitute "meetings of the Monetary Policy Committee" and "that Committee's consent", and
	(b) omit sub-paragraph (2)."
	Amendments 99 to 101 agreed.
	Amendment 101ZA
	 Moved by Lord Sassoon
	101ZA: Schedule 2, page 175, line 13, after "Bank's" insert "functions under the Financial Services and Markets Act 2000, of its other"

Lord Sassoon: My Lords, this is a large group of minor and technical government amendments that I hope we can dispatch very quickly. The amendments address a number of technical issues such as updating the Bill to accommodate changes in European law made since the Bill was introduced, amending some rogue references to the FSA in FiSMA, making consequential amendments to enactments that have been passed since the Bill was introduced and making other technical improvements. I am happy to discuss them, or write in more detail, if any Member of the Committee would like to discuss them. I beg to move.

Baroness Hayter of Kentish Town: I will just say that I am very happy to accept the assurances from the Minister that, first, these are technical amendments and, secondly, that he would be very brief in what he said today. I have tried to see whether I could speak for longer than he did. I have not been through every amendment but did look at a sample. Each one I sampled was, indeed, technical and minor.
	Amendment 101ZA agreed.
	Schedule 2, as amended, agreed.
	Clause 5 : The new Regulators
	Amendments 101ZB and 101ZC
	 Moved by Lord Sassoon
	101ZB: Clause 5, page 15, line 25, leave out "or"
	101ZC: Clause 5, page 15, line 26, at end insert "or
	(d) a qualifying EU provision that is specified, or of a description specified, for the purposes of this subsection by the Treasury by order."
	Amendments 101ZB and 101ZC agreed.
	Amendment 101ZD
	 Moved by Baroness Noakes
	101ZD: Clause 5, page 15, leave out line 31

Baroness Noakes: My Lords, I am standing in again for the noble Lord, Lord McFall, in respect of the amendments that are in our joint names. In moving Amendment 101ZD, I shall speak also to Amendments 101B and 118B, which continue on from the concerns of the Treasury Select Committee in another place as expressed in its first report in this Session.
	These amendments concern the FCA's strategic objective, which was the subject of debate on our first day in Committee when, unfortunately, I was not able to be here. The effect of the amendments is to remove the strategic objective set out for the FCA and leave it with its so-called "operational objectives". The FCA would then have simply objectives.
	The FCA's objectives have been amended quite considerably since they first saw the light of day in a draft nearly two years ago, but it seems to have been a case of two steps forward and one step back. The Treasury Select Committee believes that the Government should aim at simplicity and clarity when framing statutory objectives and that the existence of a separate strategic objective adds confusion. When the Government responded to the Treasury Select Committee's earlier recommendation in this regard, they said both that the strategic objective,
	"has a valuable role in supplementing the operational objectives",
	and that,
	"it operates as a check and balance on the operational objectives".
	As the Treasury Select Committee has noted, that is rather contradictory and the Government appear confused. It is difficult to disagree with that conclusion.
	The Government also said that the strategic objective acted as a mission statement for the FCA. The Minister repeated that two weeks ago when he responded to the group of amendments led by Amendment 42. The Treasury Select Committee's view, as set out in paragraph 4 of the 28th report of the 2010-12 Session, is that:
	"A 'mission statement' has no place in primary legislation. At best",
	it,
	"adds nothing. It may be harmful. Multiple tiers of objective risk adding to complexity and diffusing the focus within the FCA".
	Under new Section 1A, the FCA not only has this mission statement-cum-strategic objective but also has three operational objectives, a requirement to promote competition in the interests of consumers, two "have regards" and four functions. As the Treasury Select Committee has pointed out, this really is not clear and simple. I might have understood why the Government had used this contorted formulation if it had been repeated for the PRA or the FPC. However, the Bill does not take this multiple-levels-of-objective route for those bodies, nor was it the route taken for the FSA under FiSMA. I regard it as an unusual formulation for bodies created by statute.
	The Minister said last week that there were precedents for this framework but he did not cite them. Perhaps he will do so today so that we can judge whether they are good precedents. The noble Lord also did not explain why this formula is good for the FCA but not for the other bodies in the new financial stability universe. Again, perhaps he will do so today.
	When the Minister replies, can he also explain what,
	"so far as is reasonably possible",
	means in the opening words to new Section 1B(1)? Surely, the FCA should always act in accordance with its objectives, strategic or otherwise. What do the words mean? How could the FCA possibly act in a way that was not compatible with its objectives? I do not have a specific amendment on this point for Committee and the drafting of the Bill does not permit any sensible stand part debates, but I hope that the Minister can explain this when he responds. I beg to move.

Lord Eatwell: My Lords, I have an amendment in this group of a slightly different variety but I have enormous sympathy with what the noble Baroness, Lady Noakes, has said about the strategic objective. When I first read the Bill, my note in the margin said "vacuous". This notion that "relevant markets ... function well" really is gamma minus stuff. It is pathetic and does not mean anything at all. One immediately asks for a definition of "function well". We find that the objectives for competition, integrity and consumer protection are all defined, but there is no definition of what "function well" might mean.
	Moreover, not only is this expression vacuous but it has no separate life. Whenever the FCA's objectives are referred to in the Bill, it is the other objectives-the consumer objective, the integrity objective, the competition objective and the operational objectives-that are referred to. This strategic objective only has coherent life in other references in the Bill in so far as it lives through these more concrete proposals. If it is to be left as it is, it adds nothing other than spurious solidity and real complexity to the structure of objectives for the FCA. I have tried to give it some life. In our Amendment 101D in this group, my noble friend Lady Hayter and I have added the phrase,
	"in the best interests of society as a whole",
	to the term "functions well". That phrase captures the concept of the social optimum as defined in classical welfare economics. One does not want the technicalities of welfare economics within the definition of the Bill, but serving the best interests of society as a whole is the sort of expression that is used by Professor Amartya Sen in his discussions of evaluations of philosophical propositions relative to the social good. By adding,
	"in the best interests of society as a whole",
	I would hope to provide this previously vacuous statement with some structure that could be referred to as a mission statement. Although I take on board the objections of the noble Baroness, Lady Noakes, to mission statements, I must say that I tend to agree with them. A mission statement could provide some framework within which the other operational objectives could be seen. For example, on the competition objective, one would look at the objective of stimulating competition in terms of the best interests of society as a whole. There may be circumstances in which the stimulation of competition is not in the best interests of society as a whole perhaps because it causes some distortion to the operation of the market, but, more generally, we would expect the encouragement of competition to act in the best interests of society as a whole.
	We have a simple binary choice. Either we must give this vacuous statement some substance or we should remove it from the Bill, as proposed by the noble Baroness, Lady Noakes. What we should not do is leave this statement, which can do no good other than cause a bit of innocent amusement about how silly some clauses in the Bill might be.

Lord Sassoon: My Lords, I was not quick in getting to my feet because I am not sure whether Amendment 101D was moved, taken separately, or where we are.

Lord Eatwell: I have just spoken to the amendment, which is in the group.

Lord Sassoon: I wanted to be clear whether that amendment had been spoken to and on whether we should have something with substance in the provision or take it out all together.
	It will not surprise the Committee if I say at the outset that, unlike my previous responses when I have been very accommodating or have tidied things up, I cannot support this group of amendments to delete the FCA's strategic objective. The Government recognise the importance of getting the objectives of the FCA right. As my noble friend Lady Noakes said, there has now been a considerable period in which we have made substantial changes on the objective question since the first proposal, so we are, and have been, listening. It is perhaps worth going over where the suggestions for improvement have come from.
	The Government took note of calls from the Independent Commission on Banking and others on the objective proposed in the draft Bill that,
	"protecting and enhancing confidence in the UK's financial system",
	needed to be changed. The Bill now provides that the FCA's strategic objective, as has been noted, is,
	"ensuring that the relevant markets function well".
	That change has been broadly welcomed, by the Independent Commission on Banking, and by consumer and industry stakeholders alike. Even the Treasury Committee considers that the revised drafting is,
	"a significant improvement on the proposal in the draft Bill",
	as in its report of 31 May this year.
	Let me attempt to reprise the argument, without delving into classical welfare economics and areas that are a bit beyond me. The Treasury Committee may assert that a mission statement has no place in primary legislation but the Government believe that it is right to enshrine something as important as the FCA's overall purpose in primary legislation, whether or not we call it a mission statement. It is the FCA's overall purpose.
	I do not agree with my noble friend's suggestion that this creates an unduly complex or maybe contradictory set of objectives. The three operational objectives of consumer protection, effective competition and market integrity are matters that the FCA must seek to advance. In doing so, it must bear it in mind that ultimately it should be done in a way that ensures that markets function well rather than being damaged or undermined. We believe that that is worth setting out clearly. Why is that? The FCA will have a diverse number of functions, roles and responsibilities, ranging from protecting the potentially inexperienced consumer in retail markets to policing wholesale markets to spot an act of misconduct, such as the one that has come to light over the manipulation of LIBOR. It will take on the functions of the UK listing authority and will also have a strong role in promoting effective competition. These are very different jobs with superficially different objectives and goals but we want the strategic objective to act as an overarching goal so that anybody working in the FCA in future, when asked what the ultimate purpose of their work is, can say very clearly that it is to ensure that markets function well.

Lord Eatwell: Will the noble Lord indulge me? What does function well mean? "Function well" for whom? Does it mean functioning well for a consumer? Does it mean functioning well for a trader? Does it mean functioning well in terms of working smoothly without any hiccups but not allocating resources terribly well? Does it mean allocating resources efficiently? All those things come under the term "function well" but contradict one another. What does it mean, and for whom?

Lord Sassoon: My Lords, in giving those four examples the noble Lord knows very well that the first and fourth of his examples very much fit the bill, and the second and third very much do not. This is all about markets that work essentially to assist the end user of those markets. It has nothing within it to do with working well for a trader or something superficial that all looks smooth on the surface but does not provide the end result of liquidity, price discovery or choice for consumers. The noble Lord knows very well that it would be impossible within the compass of such a piece of legislation to try to define the well working of a market, but the Bill spells out the main ways in which the FCA will seek to promote the well functioning of markets-those operational objectives that I touched on.
	Those operational objectives give clues and pointers to the FCA. It will be for the FCA's board to consider if and when it needs to consider these questions of well functioning markets. I believe that it will be well equipped with its expertise to consider market by market what well functioning means. I see absolutely no problem with this. However, there needs to be something that brings together the FCA's very diverse and individual functions, roles and responsibilities.
	That relates to one of the questions asked by my noble friend, Lady Noakes, who asked why the FPC and the PRA do not have strategic objectives. It is precisely because they have much more narrowly focused objectives that they do not need the overall strategic objectives that the FCA needs because of the breadth of its responsibilities. I agree with my noble friend and others that we have not provided this strategic objective for the FCA on some whim. We have not put it in for the FPC and the PRA because it is not necessary. It is precisely because of the diversity and the potentially conflicting nature of the objectives of the other bodies that we believe it is right to have it in the case of the FCA.
	By the same logic, the strategic objective will act as a check and balance. If, say, the FCA seeks to advance its consumer protection objective by placing detailed requirements on firms, we want it always to ask itself whether what it is doing contributes to the ultimate end goal of ensuring that markets function well. What functioning well means will be determined with some commonality across all markets, but some of it will be market-specific, particularly depending on whether it is a consumer or a wholesale market. This is no afterthought. It reflects the Government's desire to enshrine regulation which seeks to ensure that markets can do their job.
	My noble friend also asked a question about how the FCA could act in a way that was not compatible with its objectives. There are examples which we need to take into account, one of which might be a short-selling ban which is, arguably, in the interests of end-consumers but is a measure which is not normally thought to be compatible with a well functioning market.

Baroness Noakes: I thank my noble friend for that example, in which a short-selling ban could be introduced because it was compatible with one of the operational objectives yet was incompatible with the strategic objective. What, then, is the point of having the strategic objective sitting in this Bill?

Lord Sassoon: My Lords, I have explained why a strategic objective is necessary in order to tie together the very disparate responsibilities of the FCA. Nevertheless, in answer to my noble friend's question about the "in as far as reasonably possible" carve-out, I give her an example of why there will be circumstances where those words are necessary. It is entirely compatible with the need for the general, overarching statement to admit and allow for the possibility that there will occasionally be instances of conflict with that overarching objective. We have done that in the Bill and this does not in any way invalidate it.
	I turn briefly to Amendment 101D in the name of the noble Lord, Lord Eatwell. This seeks to extend the FCA's strategic objective to ensure that markets function in the best interests of society as a whole. Consistent with what I have already said about the well functioning of markets, I support the sentiment underpinning the amendment. We want markets which serve the wider economy, underpin growth and contribute to a more prosperous society as a whole. We are not talking about markets that are working exclusively for those who are operating in them. This sentiment is very much part of what drives this whole programme of financial services reform.
	Having said that, I am conscious about the amendment for two reasons. First, it is not the FCA's job to decide what is ultimately in the best interests of society. The FCA is being set up as a focused, tough and proactive conduct-of-business regulator. If its new style of conduct regulation contributes to ensuring that the financial sector serves the wider economy, that is good and what we want to see. However, I suggest that deciding what benefits society as a whole cannot be the role of a financial services regulator.
	Secondly, and linked to that, is an important question of expectations. The FCA will have some important powers but it is questionable whether we could argue that it has all the powers to deliver a market that benefits all of society all of the time.
	There are difficult judgments to be made here, not least because there will always be trade-offs between policy choices. It is my strong belief that these societal choices are, ultimately, for the governor and not the regulator. I cannot, therefore, support Amendment 101D. I may be proved wrong in just a moment, but I sense that I have not completely won over my noble friend-no, I will not be proved wrong. However, she is always very reasonable about these things and she recognises the very considerable way that the Government have moved on the FCA's strategic objective. I ask her to withdraw her amendment.

Lord Eatwell: Before the Minister sits down, did I hear him correctly when he said that the choice of the benefit to society as a whole was not a matter for the regulator but a matter for the governor? Or did he say Government? I did not quite hear him properly.

Lord Sassoon: I said the Government. I hope he would agree that it was for the Government, not the governor. Good.

Baroness Noakes: My Lords, I am glad that my noble friend has cleared that up because I heard him say "governor" too. Perhaps there was a small slip, but Hansard will doubtless make sure that what he intended to say is recorded as having been said.
	I thank the noble Lord, Lord Eatwell, for his support for my amendments and I agree with him that the current drafting is not much more than a vacuous statement. The Minister said that this is going to be an overarching goal, that it is going to be a check and balance but the first example he gave me, of short-selling, means that it can be ignored. This seems to be some form of window dressing. It is trying to appear that the Government agree with as many people as possible. It probably has no meaning whatever and it is therefore possibly something that we do not need to get overexcited about. It certainly does not add to clarity in the Bill. I shall think further on what my noble friend has said before we return to this on Report. For now, I beg leave to withdraw the amendment.
	Amendment 101ZD withdrawn.
	House resumed. Committee to begin again not before 8.30 pm.

Alcohol Strategy: Role of Drinks Industry
	 — 
	Question for Short Debate

Baroness Coussins: To ask Her Majesty's Government what they consider to be the role of the drinks industry in helping to prevent alcohol misuse and anti-social behaviour, and in promoting responsible drinking, in line with the Government's alcohol strategy.

Baroness Coussins: My Lords, I begin by declaring my interests. I am a former chief executive of the Portman Group and the Drinkaware Trust, and a former member of the Alcohol Education and Research Council and the Advertising Standards Authority. Currently I am a paid consultant to two drinks producers, Brown-Forman and Heineken, but I emphasise that neither company has asked or suggested that I table this debate, nor have they had any discussions with me about it.
	Despite these connections, I would be the first to say that when it comes to irresponsible behaviour the industry has certainly not been blameless. I joined the Portman Group in 1996 at the time alcopops burst onto the market and I saw some dreadful examples of products and marketing campaigns that were inexcusable and that would now breach every rule in the book of the codes of practice that were subsequently developed and which apply today. However, I believe the industry has come a long way and is now genuine in its intentions to promote responsible drinking and prevent misuse. I also believe the industry is effective in its actions and, indeed, has been a helpful model to other sectors.
	Promoting responsible drinking and being a successful, profit-making business are not conflicting, mutually exclusive objectives. I am pleased that the latest alcohol strategy and the responsibility deal acknowledge the industry as a key partner and press exactly the right buttons to stimulate innovation and link the industry ever more closely into the community partnerships which are, frankly, the only way in which we will ever make a lasting impact on the drinking culture in this country.
	The situation is not altogether negative. Latest figures from the Office for National Statistics show that the vast majority of people-78%-are drinking within government guidelines. Per capita consumption fell from 9.5 to 8.3 litres between 2004 and 2011, putting the UK a fraction above the European average and lower than France, Spain and Austria. According to the ONS, young people's binge drinking is at its lowest ever recorded level, and fewer children aged 11 to 15 are trying alcohol than ever before. Drinking at harmful levels is falling and drink/drive fatalities have fallen by 85% since 1979.
	Yet there is still a significant minority who do drink to excess and cost the UK economy a staggering £21 billion every year. Alcohol-related hospital admissions are up and alcohol-related deaths have doubled since the early 1990s. Alcohol-related violent crime has fallen significantly but still accounts for nearly 1 million incidents every year. Individuals, families, communities and businesses are being damaged.
	To tackle these problems, the Government are right to treat the industry as a key stakeholder who can have a significant positive impact. This is partly about demanding strict standards of commercial behaviour which prohibit the industry from doing things such as targeting its marketing to under 18s and linking alcohol with sexual success, and a host of other strict and detailed rules which are policed by the Portman Group, the ASA and Ofcom.
	However, it is also about what the industry can do proactively. For example, 61 companies fund the Drinkaware Trust, now a charity under independent governance with trustees from many sectors, including health professionals. Almost all ads for alcoholic drinks now carry the Drinkaware website address and that attracts 300,000 people a month. In-kind media support from industry totals £26.5 million, significantly exceeding the Government's target of £15 million. This also compares positively with the Government's spend on alcohol campaigns of only £4.65 million for the past two years. Perhaps the Minister will tell us whether this is likely to go up.
	However, it is the responsibility deal that demonstrates the most imaginative and transformative potential of corporate responsibility. Nowhere else in Europe has achieved anything like it-and all without red tape.
	It has four key commitments. First, to take 1 billion units of alcohol out of the market by 2015 by reformulating existing brands to contain less alcohol and by innovating to bring new, lower-strength brands on to the market, helping more people to drink within the guidelines by providing a wider choice of lower alcohol products. This is significant because it shapes the drive to reduce consumption in a consumer friendly way: the issue becomes one of drinks, not of alcohol.
	Secondly, the industry will help consumers understand units better and it has pledged that by December 2013 over 80% of the products on the shelves will carry clear unit content, the Chief Medical Officer's guidelines and a warning about drinking while pregnant. It is well on track to fulfil this commitment, with over 60% of labels and containers already complying with 18 months still to go. Mandatory labelling would almost certainly need EU legislation and take years to achieve, so the UK industry is leading the way by doing this voluntarily.
	The third pledge is to provide more support for communities to develop local schemes such as Best Bar None, Purple Flag, community alcohol partnerships and business improvement districts. This is vital because alcohol harms in the UK vary hugely across different regions. For example, data from the North-West Regional Health Authority show rates of alcohol specific mortality and liver disease in Blackpool at nearly three times the national average; hospital admissions in Liverpool, nearly 2.5 times the national average; and binge drinking in north Tyneside, 1.5 times the national average.
	One of the reasons these community schemes work is because they offer a win-win outcome. For example, in Durham there has been a 75% increase in trade in pubs which run the Best Bar None scheme because it makes the pub a safer and more attractive place to go. At the same time, figures suggest an 87% decrease in violent crime.
	Finally, under the responsibility deal, producers have committed continued support to Drinkaware, not only by paying their dues and sitting back but by using their brand marketing to promote the charity's campaigns and government guidelines. During the last FA Cup competition, for example, more than 50 million football fans saw Drinkaware branding through a beer sponsorship which featured Drinkaware on the stadium perimeter. Every sixth ad shown at the matches carried the Drinkaware message. We know that it had a positive effect because during the two semi-final matches in April there was a 30% increase in direct traffic to the Drinkaware home page.
	Being a partner in the alcohol strategy of course means, by definition, that there are other groups involved too. The industry should not be the scapegoats for all the blame when something goes wrong. Pubs often get in the neck for offering so-called 24 hour drinking when in fact only a minute percentage of the UK's licensed premises have a 24-hour licence, and most of those are in airports or hotels. The fact is that we have seen a reduction in consumption since we have had a relaxation in the licensing regime.
	Producers often get it in the neck, too, for their advertising but, as I said earlier, there are stringent restrictions on the content, placement and timing of alcohol ads and the new strategy has given a clear mandate to the ASA and the Portman Group to review the rules further.
	Supermarkets often get it in the neck for selling alcohol too cheaply-I find some their discounting practices very worrying-but even price is not a straightforward issue. There is certainly a proven link between price and consumption but I am not so sure that there is a proven link between price and harm. After all, alcohol is even in cheaper in France and yet alcohol harms there are falling. Our real target should be the drinking culture and harmful patterns of drinking, whatever the price of the stuff.
	Other partners include parents, and one might ask why, according to Drinkaware, most parents do not plan to talk to their children about alcohol until well past the age when they are likely to have had their first drink.
	Law enforcement, too, has a role. One might ask why you can count on one hand the number of prosecutions of licensees for selling drink to customers who are already drunk, when this has been against the law for years. Voluntary initiatives on the part of the industry should be a complement to, and not a substitute for, proper law enforcement. I would be grateful for the Minister's comments on that point.
	The drinks industry will always and rightly come under close scrutiny and deserve even tighter regulation if it falls short of the standards which it has set for itself and which others expect of it. It must make sense to harness business skills, marketing expertise and product innovation to the effort to reduce alcohol harm, where, self-evidently, the traditional health education approach alone has failed.

Lord Brooke of Alverthorpe: My Lords, I am grateful to the noble Baroness, Lady Coussins, for promoting the debate this evening. I commence, too, by declaring an interest: as trustee of Action on Addiction and several other charities which are in the business of trying to help people who have suffered the consequences of alcohol abuse.
	I shall not go through the usual litany of problems which arise from the continuing massive overconsumption of alcohol in this country and its widespread abuse. It is true that the level of drinking has declined marginally in recent times, but, compared to 15 or 20 years ago, it is still extraordinarily high and the price of alcohol in this country is still quite low. As the noble Baroness concedes, 1.2 million alcohol-related hospital admissions were recorded in 2010-11 alone. The level of binge-drinking among young people, particularly among 15 and 16 year-olds, is still very high compared with what we find in other European countries. My first question to the Minister is: when will the Government not only review advertising targeted particularly at the young but ask the drinks industry also to stop doing it, especially through increasing use of social media? Social media are heavily populated by the young these days and that is an area where the drinks industry feels that it can make the biggest impact. If we are truly to bring about a change in culture, it should come from the young, from targeting them positively and from not encouraging them to drink.
	I congratulate the Government on the steps that they have taken to try to tackle the problem. The noble Baroness did not mention the Government's announcement to tackle the issue of minimum pricing. I congratulate the Government on the bold steps that they have taken there. I know that they are consulting at the moment, but I hope that they will stick to their guns and not be persuaded by those who will come with counter-arguments to shift their policy.
	I thank the Government for the changes which they have made to local licensing laws, on which we had some extensive debates last year. One of the factors which many of us believe lead to excessive drinking is our easy access to alcohol these days compared with 20 or 30 years ago. While the Government are working through the changes in licensing arrangements, I hope that they will continue to keep them under close review. I hope, too, that they will review the possibility of a change being made to the criteria used in granting licences locally to take into account the effects on public health of excessive drinking in particular areas and locations. They should use localism to benefit people who are suffering from some of the adverse consequences of abusive drinking in their areas.
	It would be churlish on my part if I did not concede that some substantial changes have been made by the drinks industry in recent years. Drinkaware is making good headway in certain areas, but its communication with the wider public is in many respects fairly limited. The number of people who visit its website is fairly small by comparison with the millions of people communicated with, for example, by wide-scale Carlsberg adverts shown during preparations for the Olympics.
	It is important that we do not disregard the position which the BMA has taken on Drinkaware and the joint initiative taken by the Government in the form of the Responsibility Deal. It felt inclined in the light of the way that conversations were going to withdraw from that. I hope that the Minister will say whether the Government are taking any steps to try to bring the medical profession back into partnership. The report produced 12 months ago by this House's Science and Technology Select Committee on behaviour change raised very serious questions about the extent to which the Responsibility Deal could work.
	I recognise that I am running out of time. I wanted to press on the Minister on why there has been no movement on changing drink labelling to give coverage of the calorie levels and contents of alcoholic drinks. I have done a blog today, so if the Minister is kind enough, he can go away afterwards and read it, because the Government need to take action. Regardless of what is happening in Europe, we could move on that front. That would be a way of communicating on a mass scale with many drinkers.

Lord Clement-Jones: My Lords, I congratulate the noble Baroness, Lady Coussins, both on securing this short debate and on her outstanding work in this area. I believe that this is the first debate that we have had on this subject since the Government published their alcohol strategy in March.
	I declare a very historic interest as a former employee of Grand Metropolitan plc, as it then was, in the 1980s, but, as a result, I am a firm believer in government and local government working with the industry-both the on and off-trade and the manufacturers-in implementing an alcohol strategy.
	It partly depends on having clear common understanding of the facts, but these are sometimes not straightforward-the noble Baroness set out the facts very clearly. It seems that the prevalence of binge-drinking has fallen over time, but there are many conflicting statistics and it is not always easy to draw conclusions. Nevertheless, the key factor for me is that, as Drinkaware says, binge-drinking remains a social norm. We are fighting a huge cultural battle. Many would say that binge-drinking-the inability to take in alcohol in a civilised way-has sadly been an English cultural characteristic for hundreds of years. Depressingly, it may be spreading more widely abroad.
	This is a culture we have to change. Some say that social responsibility initiatives and education are not enough. They are probably right on this, but they often go further and say that it is wrong that industry should be involved in public health initiatives. This is too purist a line. I believe strongly in the value of the Responsibility Deal launched in March 2011, as agreed between the Department of Health and the industry, in number of areas which, again, the noble Baroness set out. They include: alcohol labelling; awareness of alcohol units in the on and off-trade; tackling underage alcohol sales; support for Drinkaware; advertising and marketing of alcohol; and community action to tackle alcohol harm.
	Under this umbrella and otherwise, there are a great many community schemes where the industry is working with local government to minimise alcohol abuse and the problems flowing from it. They include Best Bar None, Purple Flag; community alcohol partnerships, of which there are now some 36; Pubwatch; and Challenge 25, designed to tackle underage drinking -to name but a few.
	There is clearly no single magic bullet, as all policy makers recognise, but we need to keep trying different approaches. I broadly support the Government's alcohol strategy, published in March this year. The Minister may be aware that I was sceptical about Government's so-called rebalancing approach to the licensing regime in the Police Reform and Social Responsibility Act, in particular as regards the evidential test being changed both for the new EMROs and for licence conditions and the removal of the vicinity test, not to mention the blanket nature of the late-night levy. Time will tell, but there are many other areas of government strategy to support.
	In particular, there is the question of minimum alcohol pricing. A Home Office paper was published in March 2011 which, albeit tentatively, suggests that there is enough evidence to say that the minimum pricing of units of alcohol would have an impact on behaviour. Of course, that is not popular with the industry, but, along with many who run pubs and clubs, I believe that one of the key components of binge drinking is preloading-drinking cheap alcohol purchased from supermarkets and off-licences before going out. The Government paper says that there is evidence of a link between alcohol pricing and violence and that pricing could have an impact on young people and binge drinking.
	What progress is being made on the consultation? What concrete proposals are being put forward? Are the pricing proposals that the cost price should be no less than the cost price of a unit, or a figure, such as 40p or 50p? Those are important issues and I hope that firm proposals are being prepared.
	I am not yet convinced-I think that the Government have the same approach-that a more draconian approach to advertising is in order. We have the guidelines laid down by the ASA and the marketing code of practice of the Portman Group, designed principally to prevent alcohol advertising being directed at children. As a result of the latter, more than 80 irresponsible products have been banned in co-operation with retailers. We should have clear evidence of abuse before plunging into further regulation.
	All of us would acknowledge that this is an important industry. Let us not demonise it but work with it.

Lord Bilimoria: My Lords, I declare my interest as the founder and chairman of Cobra Beer and the chairman of two joint ventures with Molson Coors: the Cobra Beer partnership here in the UK and Molson Coors Cobra in India.
	Sadly, I have seen the terrible effects of "country liquor", which is still widely consumed in India. Country liquor is usually about 50% alcohol by volume, if not more. It causes huge health and social problems, destroying families and communities.
	Prohibition has never worked anywhere in the world. If people are going to drink, I would prefer that they drink beer, a drink with far lower ABV than country liquor, even if that means drinking the higher ABV beers commonly found in India. I hope that one day country liquor, a scourge in India, will be eradicated and that most Indians who choose to drink will choose to buy a beer as a lifestyle choice and for refreshment.
	I thank the noble Baroness, Lady Coussins, who is a real expert in this field, for initiating the debate in this crucial area. Not to be ignored in this debate is the fact that, for us in the UK, VAT and duties have a strong impact on what British consumers choose to drink. Unfortunately, the Treasury has not kept up with an evolving drinks market. Over the past 30 years, spirit consumption has been flat, but beer consumption has fallen 1% year on year, while during the same period cider and wine consumption have grown by 5% year on year. Despite that, cider and wine, which are stronger drinks, now account for 41% of all alcohol consumed but only 37% of government alcohol revenues.
	If the duty framework is not adapted to the current market environment, it will have serious negative consequences, including people switching to stronger drinks. For example, the average ABV of cider is more than 5%, while the average ABV of beer is 20% lower at 4%. It is a lose-lose situation for the Government, with people drinking stronger products and the Government getting less revenue. Does the Minister agree that a balanced duty framework will increase revenue and should be part of a co-ordinated wider government policy to address alcohol harm by reducing units consumed?
	In this country, as the noble Baroness, Lady Coussins, outlined, the Portman Group has done tremendous work in promoting responsible drinking. The truth is that the vast majority of adults in the UK drink socially, and 78% of them keep within the government-advertised consumption limits. Social patterns around drinking are improving. The drinks industry is promoting responsible drinking, supporting a number of programmes and working with local and national government bodies that really make a difference in tackling the various facets of alcohol issues.
	Molson Coors supports two of the best alcohol responsibility programmes for its customers. First, there is Best Bar None, which has been referred to, for the on-trade. That programme celebrates the running of responsible venues, including how alcohol is marketed responsibly. It has been running for 10 years and there are more than 100 BBN programmes across the country, with more than 3,000 venues involved, so there is still scope to expand enormously. It has been very effective. For example, Doncaster's BBN scheme reported a 36% drop in alcohol-related crime with 70% fewer police call-ups. Not only that, the night-time economy for towns and cities benefits. As the noble Baroness, Lady Coussins, said, Durham licensees reported a 75% cumulative increase in trade. The night-time economy is worth £66 billion and employs 1.3 million people. Programmes such as Best Bar None help to ensure that the industry is sustainable in the long term.
	Secondly, there are community alcohol partnerships for the off-trade. That is about tackling under-18 drinking in local communities, with supermarkets and licensees getting together with local NGOs and working to engage and support local areas. It has been highly successful and there are great examples of cross-collaboration working. Molson Coors funds both those schemes alongside other drinks companies.
	The Government can and must do everything that they can to encourage the development and take-up of those initiatives. Will the Minister assure us that the Government will support them?
	Other successful programmes are Street Partners and Street Angels. They involve church groups getting together and being good Samaritans, giving up their time on late nights and early mornings to ensure that people on nights out are safe and helping them avoid getting into bad situations. Areas have reported an up to 60% reduction in crime because of those schemes.
	That is why, when the Prime Minister speaks of the big society, I think of those people working late at night or early into the morning, engaging with their local communities. They are true heroes. As the noble Lord, Lord Clement-Jones, said, there are other schemes, such as PubWatch and Purple Flag. Can the Government help those schemes to work more closely together?
	I conclude that the common theme of those schemes is businesses and communities coming together on the ground to resolve local issues. That is where the Government, despite their cuts, must not be penny wise and pound foolish. Can the Minister confirm that the Government must find the funds to work with the drinks industry to support those schemes, which so greatly improve our communities in terms of the health and general well-being of their citizens?

Lord Roberts of Llandudno: My Lords, first, I welcome the opportunity that the noble Baroness, Lady Coussins, gives us to discuss this problem. The question of drink is one that you attack with great reluctance or a flak jacket-one of the two-because that is not popular. We might be called fuddy-duddies, or I might be called a wild Welsh Wesleyan Methodist teetotaller. I am, and I make no apology for it.
	How seriously do we treat this issue? Today, the Chief Medical Officer for Wales, Doctor Jewell, issued his report. He states that across Wales, life expectancy has been increasing for the past two decades. For men, it is now 77.6 years; for women, it is 81.8 years; but in the most deprived areas, deaths from alcohol are three and a half times higher for men and twice as high for women. For instance, we can contrast the inner-city Grangetown area in Cardiff with Dinas Powys in the Vale of Glamorgan. In Grangetown, the life expectancy for men is 71.5 years. Four miles away in Dinas Powys, it is 81.8 years. There is a 10-year difference according to the area and culture in which you live.
	In a previous report, Russell Davies said that the real opiate of the Welsh was alcohol. The hopelessness of destitution demanded a shortcut to oblivion; a short route out of their misery. That will be the reason for many people drinking excessive alcohol. Today in Wales, 15% of hospital admissions are because of alcohol, at a cost of between £70 million and £85 million per year. Imagine what we could do with that in the health service in Wales.
	Other parts of the UK have similar, if not worse problems, but there are 1,000 alcohol-related deaths in Wales every year. Is it possible to tackle this problem effectively? There are many suggestions. Scotland has introduced the 50p per unit minimum price for alcohol. It could well be introduced in the rest of the United Kingdom to halt youth binge drinking. I support it, but I wonder whether it affects those older people who just want an evening of relaxation, which then costs them more.
	Responsible licensees are the best friends of responsible drinking, because they had to safeguard not only their reputation but their licences. The problem of the supermarkets-not only big supermarkets, but the so-called booze shops-is that drinks are far cheaper than in pubs. Minimum pricing could help, and for health's sake, as has already been mentioned, we need to get rid of special offers. It used to be said in the old days that the notice in a pub would read, "Drunk for a penny, dead drunk for tuppence." That was a special offer. Could we end these completely? That would not be a popular move. But one street in Cardiff, St Mary's Street, was recorded by an American journalist as being like the night of the living dead. Do we need stronger regulation?
	The drinks industry also has a responsibility when it comes to pricing soft drinks. I know friends who are trying to ease up on their drinking, but a drink of Coca-Cola will cost as much sometimes as a pint of beer. Somehow we need to ask the drinks industry to co-operate by pricing soft drinks far more responsibly and reasonably. Is it also time to bestow star ratings on pubs, clubs and supermarkets?
	Finally, I was at the funeral of a friend of mine two weeks ago. She had five children. They had moved to a house in mid-Wales with a dangerous running stream at the bottom of the garden. People said to her, "You know, we should fence off that stream." Instead she said, "No. I should teach the children to swim." It is from the example given by their parents that children learn to drink moderately-if drinking at all-but it is a big responsibility.
	I do not think anyone knows the full answer, but at least this evening's debate will contribute something to that thinking.

Baroness Finlay of Llandaff: My Lords, I am most grateful to my noble friend Lady Coussins for instigating this important debate. It goes to the heart of where the line is drawn in the relationship between government, all the public health concerns of government, and the drinks industry. There is a fundamental conflict of interest here. The Government pick up the costs, particularly the healthcare and social care costs, of the victims of alcohol abuse. You only have to go into an A&E department at night to see the large numbers there or visit a liver transplant unit.
	The other side of this divide-and it is a divide-is that those who work in the drinks industry have a duty to their shareholders to maintain their profits. Therefore, however they work with Government, they are certainly not there to put themselves out of business.
	There are some things which the drinks industry can do, and is uniquely placed to do. For instance, training bar staff properly to challenge those who are underaged or who are already intoxicated and wanting to buy more alcohol. That has improved greatly.
	The labelling commitments, however, are lagging far behind. Some of us wonder, where are these clear labels? Where are the labels unified on a voluntary basis? There was an attempt to bring in legislation in this House during the term of the previous Government, but that has not come to fruition. The responsibility deal has yet to prove its worth. As has already been said, the BMA felt that it could not carry on. Neither could the Royal College of Physicians, for the same reason. It felt that the voice of the drinks industry was disproportionately strong in the way that the forward path for alcohol control and strategy was being developed.
	There has been talk already about unit pricing, but I would ask the Government, what has happened to the question that I raised previously about such pricing being index-linked? As soon as we begin to have inflation the price per unit will become almost insignificant, unless that is priced as a proportion and index-linked as a percentage cost rather than an absolute cost. Indeed, it is worth noting that Scotland has already put up its so-called minimum price.
	Some of the advertising we see is very clever. A phrase such as "Why let good times go bad?" has a subtle message behind it: that you have a good time by drinking. There is not a message there that you can have a good time on sparkling water. I am from Wales, and we have some wonderful sparkling water. It comes in blue bottles, called Ty Nant. It is extremely fashionable in Wales.
	There is a message that you can have a good time without even having to have a drink. But there is a subtlety behind some of this advertising that is worrying, particularly in the use of social media.
	While I applaud the Government for the action that they are taking, I would ask them to take a long hard look at the conflicts of interest that lie inherently in having too close a relationship with the industry, and in not having a high enough profile for the voices of those in public health; in particular, working with local authorities and others to make sure that alcohol control measures are effectively implemented.
	We hear a lot about education strategies; I am afraid that the evidence that those have actually altered behaviour is very weak, although there is certainly evidence that they have increased awareness. I am afraid I cannot say that all is going perfectly well. I would like to see a little more separation-not to stop any of the moves, but to try to get clearer labelling in place, and index-linked prices.

Lord Shipley: My Lords, I am grateful to the noble Baroness, Lady Coussins, for initiating this debate and for enabling us to scrutinise the performance of the drinks industry. Here I declare my interest as a patron of Street Pastors in Newcastle upon Tyne.
	Since the Portman Group was founded in 1989, the affordability of alcohol has increased by 32%. The number of alcohol-related deaths in England has doubled from 3,157 to 6,669, and the number of alcohol-related hospital admissions in England has doubled in the 10 years since 2002 from 510,000 to 1.173 million. Today half of violent crime and domestic abuse is linked to alcohol, some 1 million cases in 2010-11.
	Industry bodies such as the Portman Group and Drinkaware promote education, but the evidence says that on its own, education does not change behaviour. In fact the World Health Organisation document, Alcohol in the European Union states:
	"There is evidence that social responsibility messages ... benefit the reputation of the sponsor more than they do public health."
	I question why the Portman Group has attacked independent reports that support minimum unit pricing despite independent evidence that says that reducing the affordability of alcohol is critical. Why does the Portman Group do this? The industry blames a small minority of people for drinking irresponsibly, but all the evidence tells us that it is no longer a small minority. Specifically, we should note that the industry spends some £800 million a year on alcohol marketing, and that the industry is not protecting children. In the UK we have some of the laxest alcohol advertising regulations in Europe. Why is alcohol advertising allowed in cinemas showing 12 and 15 certificate films? The regulations allow alcohol advertising to be shown as long as the under-18 audience does not exceed 25%. Yet the proportion of the UK population made up of under-18s is actually only 21%. Worryingly, the industry is moving its marketing spend online, where children are particularly vulnerable. Some 34% of Facebook users are under the age of 18. With regard to television, Alcohol Concern estimated that 5.2 million children could have been exposed to alcohol advertising during TV coverage of the 2010 World Cup.
	Crucially, there is a fundamental conflict of interest. The alcohol industry has a legal duty to maximise its return for its stakeholders, and yet reducing harm relies on reducing consumption levels across the population. That can be done only by minimum pricing. Evidence from Professor Petra Meier from the University of Sheffield has estimated that if everyone drank within recommended guidelines, industry profits would fall by 40%.
	The industry has, in my view, presided over the destruction of our traditional drinking culture. Most people now drink at home; most alcohol is purchased in supermarkets; alcohol has, until recently, been getting stronger; measures have been getting larger; alcohol has been sold as a loss leader and can be cheaper than water; and traditional neighbourhood pubs cannot compete and are closing. I have concluded that the alcohol industry has become part of the problem. Self-regulation and voluntarism does not work, and the industry should not be permitted to have a role in influencing the making of policy on alcohol when it has such a clear financial interest in the outcome. It should now, and in future, implement decisions made by others.

Lord Rosser: My Lords, I add my thanks to the noble Baroness, Lady Coussins, for initiating this debate about the role of the drinks industry in helping to prevent alcohol misuse and in promoting what is described as responsible drinking. Presumably, though, not drinking alcohol is also responsible and socially acceptable. Other speakers have already referred to the nature and extent of the issue we face, with almost 1 million alcohol-related violent crimes and well over 1 million alcohol-related hospital admissions in a year. The industry-whether retailers, producers, pubs, bars, restaurants or shops-recognises the problem and the major producers have established the Portman Group as a self-regulator. I do not know whether the driving force behind the creation of a self-regulator was an ethical or moral one in this case or whether it was concern among the producers at the potential consequences for the industry if they were not seen to be taking action themselves. Perhaps it was both.
	In 2009, the Commons Health Select Committee heard evidence that industry profits would fall by 40% if everyone drank within recommended guidelines, a point which I think the noble Lord, Lord Shipley, just made. I am told that over 10 million people currently drink regularly over the guidelines, so we are not talking about a problem affecting a small minority. Self-regulation can work but does not necessarily work, particularly if the objective is to do the minimum needed to try to keep the wolves from the door, as we have seen with the ineffectual Press Complaints Commission.
	The drinks industry-that is, retailers, producers and the on-trade and off-trade-must make it clear, and be seen by its actions to be making it clear, that it will take whatever steps it can to eliminate the irresponsible sale and promotion of alcohol in order to make it easier for, and help encourage, those who wish to drink alcohol to do so both in an acceptable manner to society as a whole and in a less risky and dangerous way to their own health. However, to take those steps means looking at the issues of price, availability and marketing, which the Government's responsibility deal with the industry did not really do. That was why key organisations, as has already been said, declined to become involved. The Government's responsibility deal did not really address vital issues, despite their saying that too much of the industry still supports and encourages irresponsible behaviour through poor product location, underage sales, excessively cheap drinks and the encouragement of excessive drinking.
	It is right that the industry should set out what action it has taken. The noble Baroness, Lady Coussins, referred to a number of such actions but at the moment it does not look as if it is enough. The industry is a source of pleasure to many and of jobs and revenue to the Exchequer, just like other industries, but the impact of its product when misused-as it is all too frequently-is also a source of expenditure for the taxpayer and of loss to other industries and the economy in general through resultant absenteeism and illness, leaving aside the social effects of excessive drinking. I hope that the industry will direct more expenditure and effort into self-regulation, publicity, public relations and campaigning towards actions and developments to reduce drinking and will not be tempted, as appears to have happened in at least one other industry, towards any actions behind the scenes to dilute efforts to address the problem that we all recognise exists.

Lord Henley: My Lords, I join other speakers in offering my congratulations to the noble Baroness, Lady Coussins, on securing this debate and on the contributions that we have heard during it from other speakers. We have had a range of views and I think we could say that we are all agreed on one thing: the damage that alcohol can cause. However, as to the solutions, I think it was the noble Lord, Lord Roberts of Llandudno, who said that he did not know what they were and that there might be a whole range of them. The solutions seemed to vary from more regulation to self-regulation and a bit of both. I want to set out roughly where the Government are in relation to these matters.
	We believe, and I think the House is in agreement with this, that drinking alcohol to excess is a key cause of societal harm, including crime, family breakdown and poverty, as well as being a leading cause of health harm. At odds with the trends across Europe, alcohol consumption in the United Kingdom has increased quite dramatically over the past 50 years, although there has been a positive reduction in overall alcohol consumption over the past few years. That is a good thing but we believe that it is still too high and that it causes misery and pain to individuals, destroys families and undermines communities. Binge drinking accounts for half of all the alcohol consumed in this country and the crime and violence that causes generates mayhem on the streets, spreads fear in our communities and drains hospital resources. I was grateful to the noble Baroness, Lady Finlay, for reminding noble Lords just what A and E can look like on a Friday or Saturday night.
	The Government are therefore convinced that tackling the problems of alcohol is a priority, which is why we launched our alcohol strategy in March. We have witnessed a dramatic change in people's attitude to alcohol over the past decade. We have seen a culture grow where it has become acceptable to be excessively drunk in public and for people to cause nuisance and harm to themselves and, equally importantly, to others. A combination of ignorance, irresponsibility and poor habits have led to alcohol-related harm across crime, health and all other areas costing society an estimated £21 billion per year, which I think was the figure that the noble Baroness, Lady Coussins, quoted. Some 44% of all violent crime is carried out by individuals under the influence of alcohol. There were almost 1 million alcohol-related violent crimes in 2010-11 alone, and alcohol is one of the three biggest lifestyle risk factors for disease and death in the United Kingdom, after smoking and obesity.
	I assure the noble Lord, Lord Brooke of Alverthorpe, that we take the health side of this very seriously. The alcohol strategy that we published in March might have emanated from the Home Office, but it had input from all other departments. The Department of Health takes these matters very seriously. In his foreword to the alcohol strategy, my right honourable friend the Prime Minister made it very clear that we will not tolerate this level of alcohol-related harm.
	The Government's alcohol strategy therefore sends out a strong message that we will crack down on the binge-drinking culture in our country; cut the alcohol-fuelled violence and disorder that still affects many of our communities; and cut the number of people drinking irresponsibly. If I take that original figure I gave, £21 billion per year, for all the costs of alcohol-related harm, the cost of crime alone is estimated to be in the order of £11 billion per year. That is simply unsustainable.
	The strategy sets out a wide range of actions to tackle the excessive consumption of alcohol, including the introduction of minimum unit pricing. I remind the noble Lord, Lord Roberts and the noble Baroness, Lady Finlay, that although Scotland has announced its intention to bring in minimum unit pricing, it has not been brought in yet. In our strategy for England and Wales we announced that we will bring in a consultation on the level of minimum unit pricing, not on whether we should have it. We will be doing that in the autumn; we shall put forward a range of options as to what would be appropriate. There will also be a commitment to consult on a ban on multi-buy promotions. I assure the noble Lord, Lord Brooke of Alverthorpe, that we have rebalanced the Licensing Act to enable local agencies to take the right action, including giving local councils the power to use early morning alcohol restriction orders and charge a levy for late-night licences to contribute to the cost of extra policing. Last week we published our response to the consultation, Dealing with the Problems of Late Night Drinking, and I commend that to noble Lords.
	I am grateful, again, to the noble Lord, Lord Brooke of Alverthorpe, that he offered praise for the changes we have made in licensing. I imagine that he was one of those, along with the noble Baroness, Lady Coussins, who took part in the Police Reform and Social Responsibility Act that my noble friend, my predecessor, took through this House last year, which dealt with some of these matters.
	The noble Baroness, Lady Coussins, also asked about the Government's spending on alcohol awareness, and claimed that it was comparatively low compared to what the industry itself was spending. The strategy sets out how the Government and industry will work together to tackle alcohol-related harms and will help to give individuals the information that they need to drink responsibly. We launched a fully-integrated Change for Life campaign in February this year, communicating the health harms of drinking. Our intention is to extend this social marketing campaign if the evidence shows that it improves health outcomes and is good value for money. We all know that advertising does not always work; one remembers the story of the late Lord Leverhulme, who said he knew that half his advertising worked and half did not but that the trouble was that he did not know which half worked. We want to look at our advertising, therefore, and see what works and what does not.
	On the subject of advertising, again there have been differing views from noble Lords. I appreciate what my noble friend Lord Clement-Jones said about there possibly not being a case for further regulation in this field, whereas others-I think it was the noble Lord, Lord Rosser-would prefer a greater degree of regulation. Extensive regulatory regimes are already in place to control advertising and marketing of alcohol products, which are pretty robust, despite what has been said, especially in relation to the protection of young people and vulnerable groups. Obviously, as I said, we will have to look at the evidence on that and at the evidence of the effect of that advertising. We would prefer to continue down a route of self-regulation but, obviously, if we find that advertising is causing problems, we might have to consider that as an area for regulation in future. My gut instinct would be not to go for further regulation at this stage, when we have a pretty robust regulatory regime as it is, with a great deal of self-regulation and co-regulation.
	It is also acknowledged, and I think that most noble Lords would agree with this, that alcohol consumption in moderation can have a positive impact on adults' well-being, especially where this encourages sociability. Well run community pubs and other businesses form a key part of the fabric of neighbourhoods, providing employment and social opportunities in our local communities. At a time of austerity and global economic pressures, the alcohol industry and the wider retail and hospitality sectors play a key role in our economy, contributing some £29 billion each year and playing an important part in our exports. In total it is estimated that some 1.8 million jobs in the UK are related to the alcohol industry, so a profitable alcohol industry enhances the UK economy.
	The strategy puts a strong focus on a responsible industry that has a direct and powerful influence on consumer behaviours. It is the responsibility of the entire industry, alcohol producers and retailers in both the on-trade and the off-trade, to promote, market, advertise and sell their products responsibly, and that is what we want. We know that growth and responsibility can exist well together. The Government welcome self- regulation and active initiatives, driven by the licensing trade in partnership with the police and local authorities. I was very glad that both the noble Baroness, Lady Coussins, my noble friend Lord Clement-Jones and others mentioned Best Bar None, Purple Flag and businesses joining together to form business improvement districts.
	The noble Baroness also mentioned Durham. I have visited the project in Durham; I did so partly because I had been at university there many years ago, and things have changed somewhat now. I was taken around by the Chief Constable of the Durham constabulary and I was very impressed with what they were doing. We have seen in Durham that a thriving and growing night-time economy can operate where excessive drinking is tackled consistently and robustly by business, the police and local authorities. As the noble Lord, Lord Bilimoria, said, over the three-year period of taking part in a Best Bar None scheme in Durham, licensees reported an estimated 75% cumulative increase in trade; a 50% increase in town-centre footfall and an expected 87% reduction in violent crime, and we should all note that last figure. As well as sending out clear messages that crime and disorder will not be tolerated in pubs, clubs and wider locations, such schemes have been proven to increase footfall and stimulate other businesses, whether cinemas, restaurants or whatever.
	The Portman Group, which the noble Baroness knows well from her past-I believe that she was chief executive-introduced a Code of Practice on the Naming, Packaging and Promotion of Alcoholic Drinks in 1996. All alcohol products sold or marketed in the UK are subject to the rules of the code, which prevent alcohol being marketed to children in a way that would encourage excessive or irresponsible consumption. We are working with the Portman Group to ensure that, where unacceptable marketing occurs, it results in the removal of offending brands from retailers.
	The Government's Public Health Responsibility Deal also taps into the potential for businesses to work with the Government and public health organisations to improve public health through their influence over food, physical activity, alcohol and health in the workplace. The responsibility deal recognises that there are areas where doing nothing simply is not an option, but the something to be done is not always necessarily best done by the Government.
	I see that my time is coming to an end. We are beginning to make progress in this area: the fall in alcohol consumption over the past few years is something that we should welcome, as we should the further progress that we hope to make a result of the alcohol strategy. While progress continues to be made, there is still more to be done. That is why the strategy sets a new challenge to industry on product labelling, unit content, actions on advertising and product placement. We all agree, as I think my noble friend Lord Roberts of Llandudno said, that there are no simple solutions. However, we accept that we should rightly be challenged on our policies, and there is no better place for that than this House.

Baroness Stowell of Beeston: My Lords, I am sorry that my timing is a bit wrong tonight. I beg to move that the House adjourn during pleasure until 8.30 pm.
	Sitting suspended.

Financial Services Bill
	 — 
	Committee (3rd Day) (Continued)

Amendment 101A
	 Moved by Lord Flight
	101A: Clause 5, page 15, line 32, at end insert-
	"(c) does not harm the competitive position of the United Kingdom in the markets for the provision of domestic and international financial services."

Lord Flight: My Lords, I am extremely happy with the domestic competitive objective of the FCA, where it is straightforward that a healthy competitive market is clearly in the interests of consumers. My amendment relates to international competitiveness. I well appreciate that the Treasury is sensitive to that being linked to the concept of easy and relaxed regulation which is being partly blamed for the problems that have occurred. This is why my amendment is in a negative form, reading "does not harm" competition rather than "actively promotes international competitiveness".
	In the context of this Bill the FCA is perceived primarily as looking after the interests of consumers, but it continues from the FSA to regulate in a wide range of territories. The balance sheets of life insurance companies and overall banking supervision go to the Bank of England. Left with the FCA is the investment management industry, retail and institutional. I should declare my interests, as in the register, in a number of investment management companies. What makes that industry stay and succeed in the UK is a mixture of a competitive tax regime, good regulation and a good supply of able people. I cast my mind back 30 years. On a largely fiscal issue I pleaded with the Treasury to enable the UK to compete with Luxembourg, but this did not happen for 20 years and more. As a result a huge investment management industry grew up in Luxembourg which London could easily have had. For institutional business in the various areas which the FCA regulates, it is important that it is at least mindful not to create situations that make the UK less competitive than it need be. There is a warning for the investment management industry that partly for fiscal reasons there has been an exodus from the UK over the past year or so by about 30% of the hedge fund industry and of other more straightforward investment management operations.
	This is a practical matter. There is nothing to be ashamed of in having a requirement that what the FCA does should not harm the competitive position of the UK in the world at large. I beg to move.

Baroness Noakes: My Lords, I have two Amendments in this group, Amendment 104, which is in my name, and Amendment 139A, which stands in my name and in the names of the noble Lord, Lord McFall of Alcluith, and the noble Baronesses, Lady Cohen and Lady Kramer. Therefore, Amendment 139A has a pretty solid set of supporters. I shall come to that amendment in due course.
	In different ways, both these amendments and the others in this group address the position of the UK's financial services sector. This is a difficult time to be defending the financial services sector in the UK because it far easier to be in attack mode, as we have seen in both Houses of Parliament and in the media. I thought long and hard about whether it would be appropriate to speak to these amendments at this time, but whatever the current difficulties, which are huge for the banking sector and individual institutions within it-I remind the Committee that I am a director of the Royal Bank of Scotland-we need to be dispassionate about this legislation. We cannot solve all the problems of the sector in this Bill and, thankfully, another Bill will be coming along soon if we need to respond in legislative terms to the latest issues. However, this Bill could, inadvertently or otherwise, damage the broader financial services sector, which is and has been a major contributor to the UK economy. We have a duty to ensure that when this Bill leaves your Lordships' House we have taken a balanced view of the risks and threats to the UK and have responded in a measured way.
	I will start with Amendment 104A. It is very similar to Amendment 101A which my noble friend Lord Flight has already moved. My noble friend's amendment places lack of harm to the competitiveness of the UK's financial services sector as a general duty in new Section 1B. My Amendment 104A adds to subsection (5) of new Section 1B a "have regard" item in respect of the international competitiveness of the financial services sector. My amendment merely reinstates the law as it currently applies to the FSA and makes the FCA have regard to the desirability of maintaining the international competitiveness of the UK.
	My concern has been that the loss of the FSA's specific duty to have regard to international competitiveness may be taken as a green light to have no regard whatever to the issue. That would be a mistake for the UK. I do not need to remind noble Lords of the size of the financial services sector. It amounts to very much more than the global banks and it is important for employment, tax revenues and its contribution to GDP.
	At Second Reading my noble friend said that the Government's view was that having high standards of regulation was all that was necessary to establish,
	"the attractiveness and competitiveness of London".-[Official Report, 11/6/12; col. 1262.]
	I hope that he meant more than London because the financial services sector is important to many parts of the UK and is not confined to London. More importantly, high standards of regulation can never be enough on their own. We can have the highest possible standards, but they could be operated in such a way that they actually drive business away. There is a very real danger that in response to the financial crisis and more recent revelations the regulatory pendulum will swing to a place which, to use the phrase of my right honourable friend the Chancellor, achieves the "stability of the graveyard". If there is no reference in this legislation to the wider context of the financial services sector, there is a very big risk that it will be ignored entirely, and that is a risk which I suggest that we ought not to take with this legislation.
	I should say that I tabled Amendment 104A in respect of the FCA but did not table a similar amendment in respect of the PRA. At that point, my primary focus was on the fact that the FCA's objectives are very consumer-focused. That is clear from the Bill and is also clear from what Mr Wheatley, the chief executive designate, has said in public. However, the FCA has a very broad scope in wholesale financial markets, including the recognised exchanges, where issues go way beyond consumer protection in a narrow sense. Wholesale markets are important, both internationally and as part of the infrastructure which supports the financing of British business. There may be other ways of ensuring that the FCA does not forget the wider picture, but my amendment is just one way of achieving it.
	I should probably have tabled a similar amendment in respect of the PRA. The two bodies have different functions but they both have the capacity to do harm or good to our financial services sector. I am therefore supportive of Amendment 129 tabled by my noble friend Lord Flight.
	Both the PRA and the FCA should have something about the success of the financial services sector hardwired into their framework, so I have also tabled Amendment 139A, which was suggested by the London Stock Exchange. Amendment 139A is slightly different. It amends the regulatory principles, which will apply to both the FCA and the PRA through new Section 3B of FiSMA. Under subsection (1)(b) of new Section 3B, the regulatory principles include the principle of proportionality-that is, that burdens should be proportionate to costs. I am sure that we will look at this in more detail later in our Committee, but for present purposes my amendment states that in considering benefits and burdens, the regulators should consider,
	"the capacity of the financial sector to contribute to the growth of the United Kingdom economy in the medium or long term".
	The point is that regulators need to think about the impacts of their regulatory actions in the broader context of the financial services sector and its impact on the UK economy. There could be direct impacts, as in the direct contribution of the sector to GDP or employment; or there could be indirect impacts; for example, through the ability of the financial services sector to support the real economy.
	I am not wedded to the precise formulation of this amendment, or indeed the other amendment in my name, but I would simply note that it is drawn from wording that applies to the way in which the FPC is required to go about its business as set out in new Section 9C(4) under Clause 2 of the Bill.
	When my noble friend the Minister wrote to noble Lords after Second Reading on the issue of proportionality, he urged us to examine the FSA's compatibility statements, which are used to evaluate proportionality. My noble friend misses the point, which is that the FSA currently has the "have regard" obligation in respect of international competitiveness and so of course it includes the financial sector's position in the compatibility statements. If we take the "have regard" out of the legislation or indeed any other similar reference to the wider context, it will follow, as night follows day, that such issues will drop out of the compatibility statements. We cannot assume that these issues will remain anywhere in the minds of the regulators.
	The substance of these amendments is crucially important and much more important than the exact form of the amendments in this group. I hope that my noble friend will give them serious consideration.

Baroness Cohen of Pimlico: I support Amendment 139A, also tabled in my name, along with the noble Baronesses, Lady Noakes and Lady Kramer, and my noble friend Lord McFall, who is not in his usual place. I remind the House that I am a director of the London Stock Exchange. The words are carefully chosen, and I would not disagree radically with the other amendments proposed. I believe that we are all seeking a regulatory regime, which, while preserving stability, leaves room for one of our most successful industries to grow and prosper. It can only do that if regulators are able, as the amendment suggests, to include consideration of the capacity of the financial sector to contribute to the growth of the United Kingdom's economy in the medium or long term. It remains vital-even in hard times like this, when much of our financial services industry is under criticism -not to forget the long term and not to handicap the regulator, enabling the industry to grow as it should while retaining stability.

Baroness Kramer: My Lords, I was delighted to add my name to Amendment 139A. The excellent speeches which precede me really laid out the case, so I have just a couple of comments. Although the financial services industry is currently the target of very much justified anger, I hope that this legislation sets a regulator in place which will last more than a decade. I think that the previous legislation lasted pretty much for 12 years. We have to take the long-term view and make sure that it is fit for purpose for the long term and when the period of correction within the industry has passed.
	It also seems that the language is carefully crafted in such a way that it did not in any way encourage the regulator to look at this as an opportunity to take more risk but as an opportunity to make sure that there was healthy and sustainable growth within the financial services sector. Perhaps I may give a simple example: in a few later amendments we will look at social investment, which is one of the new fields that are beginning to gather some momentum. That is an aspect of the financial services industry which has initially gone to Luxembourg.
	The City now is expressing serious interest in the opportunities. Many institutions in the UK could use those kinds of instruments. But the regulator has not been aware of the differences between that sector and other sectors and, therefore, the sensitivity of regulation necessary to support the growth in a new area. I think most people would agree that we are not talking about unethical behaviour or the kind of risk that might be involved in some aspects of the more casino side of investment banking.
	There are many areas where there is huge potential going forward. It will be absolutely essential that the regulator takes that on board and is a supporter of the healthy and sustainable growth of this industry, both to support the real economy and the many direct jobs involved with the sector.

Lord Hodgson of Astley Abbotts: My Lords, I support Amendment 101A in the name of my noble friend Lord Flight about the importance of maintaining the competitive position and that that needs to be uppermost in our minds. But I am also attracted by Amendment 139A which has drawn in the regulatory principles that are to be followed by both regulators. It seems to me that here we will be starting to set the culture. It is the culture of the regulator that will have such an important impact on the way our financial services develop and the way the people who work in them behave. As my noble friend Lady Noakes said, it is important not just to see this through the prism of City eyes but to realise that there are a wide range of financial services in Edinburgh and the provinces of this country which require the appropriate regulatory framework.
	Competition, by its nature, introduces novelty-novelty being something that the regulators tend to fear. It carries risk, but of course what is old and familiar is much easier to deal with. In a way, that is liked. But, particularly when established firms tend to draw attention to the risks of novelty, the regulator tends to back down. I am not suggesting that we should not take risks. We need to be risk aware but we must not be risk averse. There is a danger that in the pendulum within the Financial Services Authority and, no doubt, driven by the criticism that it has faced, we have gone to the end of the risk-averse scale. There is a great deal we still need to do in this Bill to provide the right framework and culture. I shall look forward to returning to this in amendments to which we will come shortly. For the time being, I am delighted to support my noble friends' two amendments.

Baroness Hayter of Kentish Town: My Lords, this side of the House has already acknowledged the role of competition in serving the consumer. Indeed, we could do with rather more of it in the retail banking sector. A rather more creative vision of competition could address some of our concerns in that regard. For example, Age UK has suggested shared branches which offer a perfectly competitive environment, ease of comparison, and switching from one customer to another within the same location. We are wholly in favour of a competitive environment for the benefit of consumers.
	That being so, I obviously support most of the amendments in this group. However, I ask the noble Lord, Lord Flight, why the first amendment is needed, given that it seems to put competition as a brake on the FCA. I worry what the driver is behind this. I hope it is not to protect bankers' bonuses, given there are still some in the City who seem to believe that high wages and bonuses are a vital aspect of what makes the UK competitive in this sector. I would instead call on the coalition programme, which says the Government will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector. Amen to that, although I am rather sad that-I think it is today-the Chancellor of the Exchequer is in Brussels voting against such an amendment.
	Or is the amendment drafted because there is a feeling that regulation is too burdensome? I hope it is not for that reason, but the Prime Minister has form in this regard. In 2008, he said he thought that the problem of the past decade was too much regulation. The current Chancellor also said, in 2006, that financial regulation was,
	"burdensome, complex and makes cross-border market penetration more difficult ... and it threatens the global competitiveness of the City of London".
	I hope that that the Prime Minister and the Chancellor of the Exchequer are now grown up enough to accept that it was too little rather than too much regulation from which we suffered.
	I hope it is not-maybe we can get some assurance on this-the idea that international competitiveness should trump consumer protection. The noble Baroness, Lady Noakes, was much more concerned about the wholesale market. I think she will also understand the concern of consumers that this might trump the consumer protection aspects. Although we very much want this to be an internationally competitive industry, we do not want it at any price. We do not want a race to the bottom for moving wherever regulation is cheapest or less obvious.
	In respect of Amendment 104A in the name of the noble Baroness, Lady Noakes, I know that Martin Wheatley, the CEO designate of the FCA, is very unkeen to have this duty. He does not think that in its intervention it is the function of a regulator to have to have regard to that as well as to consumer protection, and is concerned that it would create a set of conflicts. He said that,
	"to have a specific UK competitiveness competition point can only lead to compromises in regulation".
	Perhaps the Minister can indicate whether the Government have the same concerns. Perhaps the "no regard" comment of the noble Baroness, Lady Noakes, is a better way of describing this, rather than making it trump some of the other aspects. I imagine the Minister will say something similar, because I know the Government, in responding to the Treasury Select Committee on this issue, while recognising the importance of a competitive sector, do not feel that these words would add much to the Bill.
	Amendment 129 in the name of the noble Lord, Lord Flight, is rather easier. It requires the PRA to consider the desirability of promoting the UK's competitive position within financial services. We have no argument with that. London First I know is particularly supportive of this, stressing also the stability of regulation in financial services, which means no more change after this.
	Amendment 110 in the name of my noble friend Lord McFall refines the FCA's objective so that the integrity of the UK's financial system includes the confidence that it generates within the UK, as well as in foreign financial markets. This would encompass consumer confidence, which would clearly be vital in rebuilding trust in savings and investment, so we are happy to support this amendment.
	Finally, Amendment 139A in the names of the noble Baroness, Lady Noakes, and my noble friends Lord McFall and Lady Cohen of Pimlico provides that the objectives of both the PRA and the FCA should include consideration of the capacity of the sector to contribute to the UK's economic growth, also supported by the CBI. As the coalition programme said:
	"We want the banking system to serve business, not the other way round. We will bring forward detailed proposals to ... create a more competitive banking industry".
	I am pleased to say that this is one element of the coalition programme that, again, we are very happy to endorse. Given that, sadly, growth continues to flatline under this Government, if ever there was a time to ensure that these new and powerful institutions focused on job creation, this surely is it, and we happily support that.

Lord Sassoon: My Lords, this group of amendments seeks to ensure that the FCA and the PRA consider the impact that their actions could have on the competitiveness of the UK financial services sector or on the growth of the wider economy. We clearly all recognise the importance of a thriving financial services sector to the wider UK economy. Equally, we all agree that the financial services sector needs an appropriate level of regulation, and I recognise that this is a difficult balance to achieve. I hope we would all agree that in the run-up to the financial crisis this balance was wrong.
	In resolving the balance, I listened very carefully to the concerns raised at Second Reading and I have also carefully considered the representations from the industry, including from the London Stock Exchange. I am going to explain why I feel that these amendments go too far, but I want to make it clear to the Committee that we are looking at alternative options to address noble Lords' concerns that excessive regulatory action may unduly impact on the ability of the financial services sector to contribute towards the prosperity of the wider economy, and we will conclude on this ahead of Report. I see one puzzled face. I always try to be helpful to the Committee, and we brought forward some major concessions on each of the first two days. This is a very difficult area. I cannot accommodate all the concerns but I say up front that we want to see what we can do on this ahead of Report.
	As these are important amendments, I shall try to do justice to them by talking through each of them relatively briefly. First, Amendment 104A, in the name of my noble friend Lady Noakes, would require the FCA to have regard to the same competitiveness principle as the FSA is currently required to do. The FSA's report into the failure of the Royal Bank of Scotland made it clear that this competitiveness principle severely impacted on its ability appropriately to regulate the financial services sector. I have said this before but I hope that the Committee will understand why we cannot similarly constrain the FCA, and for this principal reason I am unable to accept this amendment.
	Amendment 101A, tabled by my noble friend Lord Flight, would go further by requiring the FCA to carry out its general functions in a way that did not harm the competitive position of the UK financial services markets. As identified by the noble Baroness, Lady Hayter of Kentish Town, this would operate as a brake on the FCA's actions-along similar lines to the economic growth brake on the FPC, which we have already discussed. It would prevent the FCA from taking any action if that action could be seen as damaging to the UK's competitiveness. I have already raised the negative impact of the FSA's competitiveness "have regard", so it would be impossible to accept an amendment that went even further in preventing the FCA from taking regulatory action to protect consumers, enhance competition and ensure integrity.
	Amendment 129 seeks to impose a similar statutory duty on the PRA: to have regard to the consequences of its actions on the competitive position of the UK financial services industry and to promote this competitive position. I appreciate that there are some concerns that the PRA will prioritise financial stability above everything else. However, I believe that this amendment, as it stands, is based on a mistaken concept of the role of a prudential regulator, which does need to be focused on the safety and soundness of the firms it regulates. Although I understand the concerns that underlie the amendment, I cannot accept it. At Second Reading, I emphasised the importance of the proportionality principle, to which both the FCA and the PRA must "have regard". The principle states that:
	"a burden or restriction imposed on a person or activity should be proportionate to the benefits which are expected to result".
	This will act to stop the FCA and PRA from imposing disproportionate and inappropriate burdens on firms and also, in so doing, help to ensure that the UK remains a competitive centre for financial services.
	On this question of competition and the right battles to fight, I will just say that I do not for one moment accept the construction offered by the noble Baroness, Lady Hayter of Kentish Town, on our opposition to the European Parliament's proposal that bonuses should be limited to one times salary. They would potentially harm the UK's competitive position, but that is not the principal reason for us opposing it and I am surprised the noble Baroness takes the line she does. I thought we were all working to achieve a position in which risk and reward are much better aligned than they were in the past, and that is entirely consistent with the coalition agreement that the noble Baroness quotes at me. It would be absurd to go back to a position in which the fixed element of compensation was very considerably driven up by such a proposal and in which the risk/reward ratio, which we want to get right, was limited in the way that the European Parliament proposes. If a much higher proportion of bankers' remuneration was on a fixed basis than it has ever been in living memory, it would work absolutely counter to the financial stability and market integrity priorities that I believe we all share. I would like to correct the noble Baroness on that point.

Baroness Hayter of Kentish Town: I think the noble Lord, Lord Turner, and other noble Lords have made the point about how often this particular definition of risk and reward did not align with the interests of consumers, or, indeed, often with employing organisations. There is nothing wrong with rewarding risk, but when that is not aligned to other people's interests, that is to the detriment.

Lord Sassoon: I completely agree, which is why we only very recently brought forward proposals including mandatory shareholder votes on board pay. There is, and will continue to be, a big agenda here on which this Government have been working very actively but which the European Parliament proposal would, I suggest, work against. That is why we are fighting hard in Europe, as we do on all matters, to get a result that is more desirable for the health of our industry.
	I will just say a few words about Amendment 139A, which is another very important one. It would require both the PRA and FCA to consider the impact on the financial sector's ability to contribute to the UK economy in the medium or long term, having regard to the principle of proportionality. The PRA and FCA must consider whether their actions are proportionate. That will act as a check on the FCA acting in a way that is excessively burdensome, which would prevent a subsequent negative impact on economic growth if there was not a greater benefit from taking the action. Similarly, if the PRA is being proportionate, it would be difficult to envisage a situation where the firms that it supervises could be required to be too safe or too sound.
	I have listened to the valid points made by my noble friends Lady Noakes and Lady Kramer, and the noble Baroness, Lady Cohen of Pimlico, and I understand their concerns. It is essential that the UK financial services sector is not excessively constrained in its ability to contribute to economic growth. As I said at the beginning, in advance of Report, I will consider whether a more explicit consideration of the wider economic impact of the actions of the regulators should be included in the Bill. I should stress that in making changes there must be nothing that would seriously encroach on the regulators' ability to take the action that may be necessary in furtherance of their objectives. Particularly in the light of that assurance I ask my noble friend to withdraw his amendment.

Lord Flight: For the sake of clarity I thought the point that I was making regarding the FCA was that domestic competition is what matters for the consumer. The international institutional aspects which the FCA regulates are quite substantial.
	The area that has been the real problem in the PRA and which has brought disgrace on the UK has been the banking sector, which has been largely the result of a cartel. That cartel was the result of regulation. Following Barings, it was made clear that the lender of last resort facilities were available only for banks judged otherwise too big to fail. Lots of lesser banks, such as Hambros, found that they were uncompetitive, so they closed and went away. We were left with a cartel, and when you have a cartel bad things always happen. In terms of the PRA's ability to regulate and oversee the banking system satisfactorily, it is blindingly obvious that the UK needs a great deal more competition. It is not the sole cure of everything but it is very necessary.
	The Government have taken the point and there is no point in putting the amendment to a vote. I hope that they will take note particularly of the need for greater competition in the banking industry as part of the vehicle by which the PRA can regulate better. I beg leave to withdraw the amendment.
	Amendment 101A withdrawn.
	Amendments 101B to 101D not moved.
	Amendment 102
	 Moved by Lord Sharkey
	102: Clause 5, page 16, line 3, at end insert-
	"(d) the deprived communities objective (see section 1F)."

Lord Sharkey: My Lords, in moving Amendment 102, I shall speak to Amendments 118AA and 121. They are aimed at addressing three financial problems in our deprived communities. The problems are significant and so is the size of our deprived communities. The last indices of deprivation report published by the Government notes that more than 5 million people in England lived in the most deprived areas in 2008; 56% of local authorities contained at least one area among the most deprived; and 88% of the most deprived areas in 2008 were also among those most deprived in 2007.
	The first problem that the amendment seeks to address is that many individuals in these communities face very great difficulty with financial services. In August 2010 a report to the Treasury called Realising Banking Inclusion: The Achievements and Challenges summarised the situation. The report concluded:
	"Efforts on banking inclusion have moved 1.1 million into banking but the benefits appear to be unevenly distributed and barriers to banking remain".
	The report found that penalty charges had been a harsh reality of the banking experience for many. Around half of the newly banked had been hit by penalty fees and individuals who incurred these charges tended to be charged multiple times, averaging nearly six times per year each. Although there had been savings gains for some, the tendency to cash management and the impact of penalty charges had undermined overall gains. Worse, there had been a significant increase in debt among the newly banked, resulting in an overall increase in spending on debt servicing. Perhaps not surprisingly, in view of all this, there has been a relatively high degree of account failure. Net account failures are close to one in five. The report concluded that there is a case to be made that a penalty charge system constitutes an effective market failure in the provision of banking services to those on low incomes. This market failure is the first problem which the amendments seek to address.
	The second financial problem in our deprived communities relates to the funding of SMEs. It is generally accepted that the health and supply of SMEs is critical to the health of our economy, but there is even more to it than that. Data from the Kauffman Foundation study published in July 2010, The Importance of Startups in Job Creation and Job Destruction, suggest that the role of start-ups is absolutely critical among SMEs. The study found that, on average, and for all but seven of the 28 years between 1997 and 2005, in the USA, existing firms were net job destroyers. All net new jobs came from start-ups and job creation in start-ups during recessionary years remained stable while net job losses in existing firms were highly sensitive to the business cycle. This is probably true for the UK too, and is undoubtedly why the Government announced its start-up loan scheme, four weeks ago, offering loans of £2,500 to people aged between 18 and 24. It is a clear indication of both an unmet need and a failure of the banks to supply this need.
	This is all very small-scale stuff and marginal. The fact is that the SME sector as a whole has significant funding difficulty. The Breedon report of March this year estimates that, by 2016, there will be a shortfall of between £26 billion and £59 billion in finance needed by SMEs for working capital and growth. As the latest quarterly report from the Federation of Small Businesses shows, the situation is not improving. It is not just that the banks are not helping; they may actually have made the situation worse. We now know that they have mis-sold hedging products to around 28,000 small businesses. Andrew Tyrie said that the FSA's investigation into this mis-selling is a damning indictment of the banks' behaviour, that such products took advantage of small businesses and that this behaviour is completely unacceptable. This is just the national picture: it would conceal areas where there are more significant problems. The deprived communities will suffer more. According to a 2012 report by the Centre for Responsible Credit, only 4% of all lending goes to businesses in deprived areas. It is clear that the banks are failing in this area and this is the second problem the amendments address.
	The third problem addressed by the amendments is related to the other two. It is not possible, at the moment, to have an accurate picture of what the banks are actually up to in our deprived communities. The data provided by the largest banks concerning their lending to SMEs are provided on an aggregated basis. This means that there is no information to allow local economic development agencies, including local enterprise partnerships and community development finance initiatives to enter into an effective dialogue with the banks. There is no way of assessing performance, suggesting improvement, or of knowing which banks are performing better than others; there is no way of telling the terms on which credit is being made available in these deprived areas or of telling the extent, if any, to which banks are supporting the third sector to take advantage of their new rights under the Localism Act. We need access to disaggregated data and postcode level data so we can see clearly which banks are doing what in the deprived areas. This is what our amendment proposes.
	Essentially, the amendments seek to impose a new objective on the FCA. As the Bill stands, the FCA has three objectives: consumer protection, integrity and competition. None of these objectives deals with the situation in deprived communities or even acknowledges that deprived communities may need special attention. Our proposed amendments address the issue directly by creating a deprived communities objective for the FCA. This objective requires the FCA to promote an appropriate level of financial services in deprived communities; it requires lenders to SMEs and others to publish meaningful disaggregated data so that lenders' performances can be properly assessed; and it requires the FCA, when considering what is the appropriate level of financial provision in these deprived areas, to take into account the needs of SMEs, third sector organisations and consumers.
	The Bill contains much that is technical, abstract and complex, but it should also contain simple provisions that provide help to our most deprived areas. We should not overlook that the Bill's purpose is to deliver better financial services for all the people of this country, and that includes those in our deprived areas. These amendments will help to do that. I beg to move.

Lord Flight: My Lords, I shall speak briefly to Amendments 108A and 117A, which essentially cover the same territory. They seek legislation which explicitly encourages the FCA to extend consumer access to financial services that meet their needs.
	To that end, it is desirable that the FCA should assess the impact on markets and consumers when making regulatory decisions. For example-we have yet to see the result-the RDR reforms, though from many aspects fully justified, run the risk of having the reverse effect of reducing substantially the access to financial services and products for the great majority of people. In the absence of a requirement there is the risk that the FCA will always be steered towards risk-averse regulation, preferring to see markets restricted for large groups of consumers in order to avoid any individual consumer getting sub-optimal products.
	The issue also arises in the context of the Government's welcome initiative to encourage the development of simple financial products. If it is to succeed, it will need a regulator which is working with the grain of that policy rather than in the other direction, and which has a clear brief to act in a way to help extend consumer access to financial services that meet their needs, and not the reverse.

Baroness Kramer: My Lords, Amendments 102, 118 and 121 are very dear to my heart. They are perhaps some of the most important amendments to the Bill that have been brought forward. I have been interested in financial services for deprived communities for more than 20 years, partly from living in Chicago and seeing the impact that community development banking had on the revival and regeneration of Chicago's south side. It was an area once written off because it was both black and impoverished and, in the end, it was only action by the banking regulator, under legislation, that drove forward change which was, and continues to be, dramatic.
	The noble Lord, Lord McFall, who is not in his place today, will remember the visits that the Treasury Select Committee made to community banks in the United States in 2006-I take some credit for nagging the committee into making some of those visits-which made clear how much we are missing in this country. Both individuals and small and new businesses in the United States have a degree of access to financial services and credit that we cannot rely on in the UK.
	The changes in the United States came through a piece of civil rights legislation, the Community Reinvestment Act. This amendment is not a copy of that Act, but it attempts to repeat its achievements. The data that the Act forced banks to publish exposed vacuums in lending across the United States and, to no one's surprise, they matched very much with the boundaries of deprived communities and-I hope that we would not see the same thing here-the boundaries of communities of ethnic minorities. The regulator then stepped in and required those banks to meet the target of serving those communities, or to fund someone else who would, before allowing them to engage in mergers and acquisitions. It was an extremely effective strategy and continues to be so to this day.
	The amendment is also a read-over from the banking reform White Paper, because it would allow the regulator to play a significant role that is described in paragraph 4.4 of that White Paper as,
	"a more diverse banking sector".
	Surely the areas where banks are failing to play a role should be at the top of the list for new and diverse participants.
	On our previous day in Committee, I said that the role of the regulator nowhere seems to touch on a responsibility to make sure that financial services are available all across our complex communities. Competition is focused on making sure that there is multiplicity of products, not that there is coverage of the full range of demand. Surely if we wish all our citizens to be able to participate in the economic growth of the country and want small businesses to become established, to grow and to build our economic future, we have to pay attention to that access and coverage issue as well. The requirements set out in these amendments get us to that point.

Baroness Hayter of Kentish Town: My Lords, I rise to support the amendment moved by the noble Lord, Lord Sharkey, and to speak on other amendments in this group. I believe that the Minister received a letter from the Community Development Finance Association which specifically supports the amendment. It is a powerful case and I trust that he will respond positively at the end of this debate.
	Although the Bill grants the FCA significant powers, it makes little mention of consumer access to financial services and products. Access to such services is essential in a 21st-century society, but the Bill makes no mention of it. It would be extraordinary for a competition authority, as the FCA will be, to be required to judge the effectiveness of competition in the markets which it regulates without taking into account whether the market is delivering products and services that are good value for money.
	There is not much point talking about a fairer, more competitive market if consumers are unable to access the services on offer, yet uncertainty as to whether the FCA can have regard to affordability might make it reluctant to take action on a fundamental aspect of competition for fear of being challenged. Amendment 104AA, in my name and that of my noble friend Lord Eatwell, is about access by consumers to financial service products and the need for good value for money, including for the financially excluded in society.
	In many parts of the country, there are individuals who struggle even to open basic banking facilities or to gain access to small levels of credit, yet credit is a necessity of life for many people, bridging the gap, as we know, between when one has to spend and when paydays arrive. I know that in another place Mark Hoban has said he fully agrees that consumers should have access to financial services that meet their needs, but he prayed in aid the FCA's new competition objective, which he said would give it an explicit mandate to consider the needs of consumers and to act to improve competition. However, that does not necessarily bring people into the market; it is probably only competition for those who are already there.
	Amendment 104AA would remove any uncertainty by spelling out accessibility and affordability. Amendment 102 offers a way forward for financial institutions which reflects a decent, responsible approach to the needs and ambitions of communities in a way that would benefit not just them but the economy as a whole. The amendment would promote an appropriate level of services in deprived communities, as we have heard, and ensure that the FCA plays its role in that by its interventions in affordable loans, savings and insurance products. As we have heard, that is crucial for small businesses and social ventures as much as for individual consumers. It is estimated that more than 4.5 million small businesses and social ventures and more than 3 million households are unable to access the fair and responsible finance that they require. It is particularly apposite in the context of the current revulsion-one has to use that word-felt about some parts of the banking community. This is the chance for them to rise to the challenge and show what the good side of banking can be.
	All of us have heard of small shops or service providers going to the wall thanks to the inappropriate policies of banks. It is not simply about mis-selling of interest rate swaps, important though those were; it is also about the unavailability of financial products for small entrepreneurs or, sometimes, for larger ventures that want to locate in some more deprived areas. There needs to be a proper investment strategy for social enterprise and small businesses, especially where they work in those difficult areas.
	In the past, I thought that encouragement alone would work in making banks to be socially responsible in such a way as to help consumers and potential consumers in difficult areas. I no longer think that. When the previous Government were trying to set up basic bank accounts, we tried very hard, along with the FSA, but people were still denied access. People need a bank account and insurance these days; they have become essentials rather than nice- to-haves.
	Amendment 104AA would make the FCA have regard to consumer access to affordable and appropriate financial services, and Amendment 118A requires an access and choice code to make clear what the FSA expects of those it regulates. I hope that the Minister will be able to accept the amendments and enable the FCA to play a role not just in promoting competition for existing consumers but for those whom we all want to be consumers.

Lord Sassoon: My Lords, I share many of the concerns raised in this debate. Access to financial services and access to lending for individuals and businesses are vital to our society. The question we have to ask is: who should be charged with tackling access issues? The FCA will be a conduct of business regulator with a clear objective concerned with creating the right conditions in which well functioning markets can meet the needs of consumers. Ultimately, the menu of products and services they offer to whom and at what price is a decision for firms themselves. The FCA is there to regulate the market, not to ensure that the market delivers a particular set of services or products.
	Where the market fails to provide the services that consumers need, there may well be a case for intervention in the market to promote consumers' access to financial services. The noble Baroness mentioned that issue in connection with the previous Government's drive on basic bank accounts. That is rightly the province of government and action needs to be taken. However, I do believe that it is not a matter of regulation. It is a matter of social policy and it is therefore the responsibility of the Government. It is not the job of the FCA to prescribe that there should be universal provision and who should be required to deliver it. That is for the Government.
	I will not detain the Committee with the great detail that I could go into of the actions we are taking to promote and extend access to financial services: to boost lending, particularly to small businesses; to nurture and encourage the mutual sector; and to help increase consumers' capabilities and work with industry to make access to simple products possible. We have touched on some of these issues in considerable detail in the past. There are some areas which my noble friend Lord Sharkey specifically raised, such as bank charges. I draw his attention to the agreement we announced with the banks last November, under which the major personal customer account providers came forward with a new agreement to send text alerts when balances fall below a certain level, and to provide buffer zones and so on. The action there has been significant.
	The provision of data is another area which has needed and continues to need attention. It has had some attention. Information is already regularly published concerning lending and the provision of loans and other services in deprived communities. For example, the banks that are members of the British lending task force have publicly committed to continue to publish subregional lending data on an annual basis through the BBA. I could point to a significant number of initiatives. These are things that the Government will continue to work on but they are outside the ambit of the Bill.

Baroness Kramer: Is the Minister aware of the mechanism that has been successful in the United States and how much that is tied to action by the regulator under the Community Reinvestment Act? It is the regulator that has driven that process forward, because only when conditions are met does it give permission for the banks to act in ways for which they need the regulator's permission. Is he abandoning a tool that we know has been successful?

Lord Sassoon: No, we are not abandoning a tool; partly because in this country, of course, we do not have the tool. However, I think it would be perfectly feasible for the Government, essentially as a matter of social policy, to decide on any number of actions that might require the regulators to play a part in implementing them. I do not believe that anything in the Bill would rule that out. That is quite different.
	The American example shows that the right way to go is through a focused decision by the Government or a specific piece of legislation that tackles this issue, which may then impose responsibilities on the regulator. That is quite a different matter from giving the FCA a very general power to take on itself a responsibility that is rightly the responsibility of the Government.
	It will not surprise the Committee if I say, in respect of Amendments 102, 118AA and 121, which seek to give the FCA this new deprived communities objective, that for the reasons I have given I do not think they are appropriate and I cannot support them.
	Amendment 104AA also seeks to ensure that the FCA has regard to the issue of consumers' ability to access affordable and appropriate products that meet their needs. It does that by seeking to add access to the list of matters to which the FCA must have regard in discharging its general functions. The "have regard" provisions that are currently listed there include only financial crime and the regulatory principles. That is why I cannot support the amendment. I cannot agree that the FCA should be required to have regard to something that it is not responsible for. This is the important distinction between financial crime, for which the FCA is responsible and which is listed in proposed new Section 1B, and access, which is not.
	Amendments 108A and 108B seek to ensure that the FCA considers access when advancing its consumer protection objective by adding,
	"the ease with which consumers can access regulated financial services that meet their needs",
	to the list of matters to which it must have regard in assessing what constitutes,
	"an appropriate degree of protection for consumers".
	I have already set out why I cannot support these amendments, which seek to give the FCA a formal role in promoting access, but I will remind the Committee of the kind of considerations that the FCA will take into account when advancing its consumer protection objective to help consumers. The FCA must have regard to consumers' differing experience and expertise and to their needs for timely, accurate and fit-for-purpose information. The FCA must therefore consider whether vulnerable or marginalised consumers engaging with financial services may need additional information, protection or support. The FCA's consumer protection operational objective provides the mandate for the regulator to design a regulatory regime that delivers this.
	Amendment 117A seeks to make sure that the FCA takes into account consumers' ability to access financial services in advancing its effective competition objective. Again, I cannot accept this as I am absolutely clear that it is neither necessary nor appropriate for such a have regard provision to be added to the competition objective.
	I turn to Amendment 118A. I have explained why I do not think it right to give the FCA an access mandate. Where there may be a case for action beyond the FCA's objectives, this is a matter for government, but that does not mean that the Treasury should be able to direct the regulator on how it should interpret and indeed advance its objectives, as Amendment 118A seeks to provide. This would fundamentally go against the Government's intention that the FCA should be an independent regulator and would, I suggest, blur the boundaries between regulatory and social policies. I also do not think it would be appropriate to have a power in statute, as proposed here, to allow the Treasury to give the FCA greater powers to act in an area that is rightly a matter for the Government to deliver, or indeed to give the Treasury the power to impose requirements directly on industry. We would be blurring the lines of responsibility. As I have explained, there is a lot we can do and are doing to advance some of these important social policy issues. If it came to legislation that impinged on the regulator's prerogative, it is right that any powers in this area should be considered as part of that legislation and Parliament should consider the consequences for the regulator at that time.
	Finally, Amendment 112A seeks to add "and products" to the regulated financial services for which the FCA will promote effective competition. I will briefly try to reassure the Committee that this amendment is not necessary. We agree that products are important. In fact, the focus on the design and governance of products will be one of the key ways in which the FCA will be different from the FSA. The Bill contains enhanced powers for the FCA to regulate products and I look forward to discussing in due course the new product intervention power, which is provided for in Clause 22. However, the outcome which this amendment seeks to deliver is already reflected in the Bill. A product in the context of financial services is ultimately an agreement under which one person agrees to provide a service of some kind to another person, so products are captured in the definition of "regulated financial services" as used in the Bill.
	In summary, we are sympathetic to the aims of my noble friend's amendment and to a wide range of the concerns that have come up in this debate. We are taking action on a significant number of fronts in this area. However, these are not matters for the financial regulator in the way that they have been drafted and I ask my noble friend to consider withdrawing his amendment.

Lord Sharkey: I thank all those who have spoken in support of the amendments in my name or in support of their general intent. At the beginning of his response the Minister said that the FCA is a conduct of business regulator. I say to him that it is precisely the inadequate conduct of the banking businesses that we want the FCA to regulate. I note that in the Bill the FCA is already required to take account of the needs of different consumers. All the amendments do is make this more explicit and more directed. I am disappointed by what seems to me to be a very narrow perspective in the Minister's response. I do not agree that responsibility for helping funding into deprived areas is not a matter for this Bill. I will withdraw my amendment but I will return to the matter on Report. I beg leave to withdraw the amendment.
	Amendment 102 withdrawn.
	Amendment 103
	 Moved by Lord Phillips of Sudbury
	103: Clause 5, page 16, line 7, at end insert "and society"

Lord Phillips of Sudbury: My Lords, seven amendments in this group of nine are in my name and that of my noble friend Lady Kramer. All the amendments have support from other quarters: from the noble Lord, Lord Hodgson of Astley Abbotts, who supports several; from the noble Baroness, Lady Meacher, who apologises to the House that she has had to make a compassionate visit this evening; and from the right reverend Prelate the Bishop of Durham.
	There is a vast constituency outside the House that is listening to our every word tonight. That may surprise some; however, the not-for-profit world, if I can call it that, or the social investment sector, to use another phrase, is fair and square behind these amendments. My noble friend the Minister will have already received a letter on 25 June, signed by 16 bodies. Your Lordships may be interested to know that they include Charity Bank, the Community Development Finance Association, the National Council for Voluntary Organisations, the Charities Aid Foundation, the Social Stock Exchange Association, Co-operatives UK, Social Finance and, no less in support of recognition of the social investment sector in this Bill, Big Society Capital, which was set up by the previous Government under the Dormant Bank and Building Societies Accounts Act 2008. There were also CFG-the Charity Finance Group-Triodos Bank and ACEVO. There are very many others. They all have one plea, and this group of amendments has one central aim-to distinguish in regulation between a Barclays Bank on one hand and at the other end of the scale, a small not-for-profit local organisation. I thought your Lordships would be interested in an unsolicited communication I had in the last week from the Perth and District YMCA, which is an exemplar of this not-for-profit sector. The development manager there wrote this:
	"Just today I was at the official launch of the Living Balance Programme in Perth and District YMCA which is supported by the Department for Work and Pensions Innovation Fund and is structured as a Social Impact Bond. This project will provide a unique project for 300 young people over the next three years to progress towards a stable independent life style in their local community. Nearly two thirds of the investors in this Social Impact Bond were local private individuals who invested sums ranging from £5,000-£30,000 of their own money ... I am convinced that we need to ... create the opportunity for this kind of investment to occur in a way which is not so over burdened with prohibitive legislative barriers that the immense potential value of these opportunities is lost".
	That message is repeated from end to end of the not-for-profit sector. It wants the regulators to have a sensible discretion to distinguish, as I say, between these very different animals.
	The Minister in the Commons made a plea that we must have a level playing field, with no distinction between massive international banks and a little local social endeavour. To the sector, and indeed to me, that is not a level playing field; it is a level killing field. One size does not fit all. What we need, and with the Bill we have a chance to do this, is to regulate proportionately, appropriately, sensibly and sensitively and to avoid stifling the very initiatives that were referred to in the previous set of amendments and which are vital for the success and advance of power in our embattled society.
	I use the word "proportionately" because that is one of the six regulatory principles enunciated in the Bill, and it is classically needed in this instance. I am sure that I do not need to elaborate or enlarge on our present circumstance, but we in this country are now in a critical situation vis-à-vis the financial sector as a whole. This is not just because of the economic and financial crisis over the past three years; it is because we have had a really dispiriting series of revelations about the motives and modes according to which far too big a part of the financial sector has run, and continues to run, its affairs-a monolithic, obsessive preoccupation with profit and profit alone.
	One of the beauties of the not-for-profit sector is that it contrasts almost wholly with that rather grey and demoralising picture of the financial sector. By contrast, it is made up of charities, mutual organisations, community interest companies, co-ops, friendly societies and so on, and all of them, not just as a matter of policy but as a matter of constitutional centrality-they have no choice in this-have a public benefit purpose, a social purpose, a not-for-profit purpose. By dint of this wholly different set of values and motives, they are able to reach the parts that the conventional financial sector has not reached, is not interested in reaching and will never reach. The answer to the maiden's prayer for them is to allow them to go on growing dynamically, rootedly, accountably, socially and morally, vibrant as they are.
	In case anyone thinks that this is not a sector worth worrying about, it might be worth repeating the statistics that the Young Foundation and the Boston Consulting Group researched: in 2010-11 the amount of investment by the sector was £165 million and, more importantly, if the regulation barriers could be lowered for it, the investment level would be expected to rise to £750 million. A report in 2011 by Social Enterprise UK shows that 57% of social enterprises predicted growth for this year. That is a 40% higher rate than for small and medium-sized enterprises, which, as noble Lords will know, are themselves much more dynamic in terms of development than the large companies. These small, socially innovative organisations have an infectious enthusiasm. They want to grow; they want to help; they want to do more.
	I received a letter from the parliamentary affairs counsel to the City Corporation, which realises that it ought to get involved. He refers to the fact that big society capital will invest £50 million by the end of this year in these social bodies. It is in that context that Deutsche Bank is apparently launching a fund of £10 million and HSBC a fund of £4 million-small amounts, but, I believe, indicators of much more to come. Through its Bridge House Estates the City has allocated £20 million for social investment.
	There are many other examples which will cheer us all. Peterborough prison has issued a social impact bond-a rather unlikely development. Bonds have recently been issued by the charity Scope. There is fast growth in what are called crowd funding and peer-to-peer lending, such as Buzz Bank and Zopa. Oxfam is engaged with a microfund to be used in the developing world. We have the prospective launch in London next year of the Social Stock Exchange. And so it goes on.
	New Section 137R on page 89, to be inserted into the Financial Services and Markets Act 2000, stipulates under general supplementary powers that the rules by either of the regulators, the FCA or the PRA,
	"may make different provision for different cases and may, in particular, make different provision in respect of different descriptions of authorised persons, activity or investment".
	My noble friend Lord Sharkey referred to that in what he just said.
	These amendments will give a clear and essential steer to the regulators to enable them to use with imagination and flexibility the powers that they have under new Section 137R. They will offer a realisation of what great profit there is to this country and our society by liberating some of these small, non-profit organisations from heavy-handed regulation. Everybody accepts that such regulation may be necessary for huge financial entities that can cope with it and, by dint of what has happened recently, need it. We cannot pretend that one size fits all.
	Lastly, we in the coalition-and I appeal to the Minister-must walk our own talk. The country is a little anxious about the extent to which we are doing that. If ever we have talked up the importance of social investment and the not-for-profit sector in finance, it is in this area. The big society idea is at the root of it. I have already referred to Big Society Capital. We had a paper from the Government in February last year, Growing the Social Investment Market. What was that about? It was about encouraging and not stifling the market that this Bill, unamended, will indeed stifle. We had the Red Tape Challenge and the task force in pursuit of it. My noble friend Lord Hodgson is involved in that. We had another paper in May this year called Unshackling Good Neighbours. What was that about? It was about promoting investment in social ventures. In the autumn the Cabinet Office is producing a response to Unshackling Good Neighbours, in particular to that bit of it which says that,
	"regulation barriers make it difficult for social ventures and investment in them".
	Francis Maude and Nicholas Herbert have gone on record again and again extolling the need for social investment. I appeal to the Minister. Although it may be difficult in some ways, we must put something in this Bill. I ask him not to say, as he said to the previous group of amendments, that we will have to have a separate Bill. That will not wash. It is not good enough.
	I end by saying that this vital sector needs the chance to grow and to do what nobody else is doing or can do. It is bottom up, it is rooted, it is ethically vigorous, it is public spirited and, above all, it is grounded in fellowship. With that introduction, I hope very much that, although there are only 14 of us here at this time, there may be some support for this group of amendments. I beg to move.

Lord Hodgson of Astley Abbotts: My Lords, my name is down to four amendments, Amendments 104, 120, 137 and 139, and I support very strongly what my noble friend Lord Phillips has just said. I take issue with him on only one technicality. He talked about "not for profit". I think the words should be "not for profit distribution" because these small organisations must be able to accumulate reserves for the bad times, for the contracts that do not go quite as well as-

Lord Phillips of Sudbury: I am grateful to my noble friend for making the point. He is absolutely correct.

Lord Hodgson of Astley Abbotts: Apart from that, I agree with the thrust of his remarks.
	I chaired the task force that produced Unshackling Good Neighbours, and I am glad to be able to tell my noble friend that we have already had the Government's response and are meeting on 26 July to produce our follow up. The problem with this is not making the recommendations but making sure that they are followed through. As I have told the House before, I am completing the review of the Charities Act 2006 for the Government and will be publishing a report on that next week. The terms of reference for that review required me to consider the barriers to the growth of social investment.
	This is a very interesting area. The market is immature and therefore carries with it some dangers, such as overexpansion, perhaps of too much money being raised before there are projects sufficiently ready to absorb that money, and of overoptimism. There is a weight of expectation about what can be done that we have to make sure is not disappointed. As my noble friend made clear, this idea has the capacity to transform the financing structures in the charity and voluntary sector and so radically increase the amount of funding and the number of people who will give support to those sorts of endeavours. As I have said elsewhere, how do we persuade someone who would give £50 to invest or lend £500? How do we turn this social investment chrysalis into a butterfly?
	There are lots of regulatory challenges, and not all them are in my noble friend's department. Not all of them are actually for the Government; they are also for the professions and the sector. As my noble friend said, we need to send signals from this area because this is the keystone that will set in train other serious changes. Therefore, the enabling provisions contained in Amendments 104, 120, 137 and 139 are important because they recognise, and ask the regulator to recognise, the distinctive features of social investment and regulate appropriately in an even-handed way. The hour is late. I could go on for a lot longer, but this is important, and I very much support what my noble friend said.
	Amendment 104ZA is tabled in the name of the noble Baroness, Lady Hayter. That amendment is not suitable, because it requires the FCA to promote the growth and development of social finance and social investment. The role of a regulator is not to promote but to enable. It can promote good behaviour and good approaches, but it should not promote a particular form of finance, because that could lead to the disillusionment that I have referred to. I quite understand her good intentions, but they do not help us. Nevertheless, I very much support Amendments 104, 120, 137 and 139, and I hope that my noble friend will be receptive to this important part of the big society and localism, on which we as a party and a Government have placed such stress.

Baroness Kramer: My Lords, I will add only a few words, because of the powerful speeches that have preceded me. After hearing the noble Lords, Lord Phillips and Lord Hodgson, who have spoken with such enthusiasm, the Minister may have the wrong impression that this sector is taking off with great and roaring strength, so why on earth should we worry about the role of the regulator? However, if he looks back at the numbers that have been quoted to him, the amounts of money that are being raised or proposed are extremely small compared to the demand and the need. The regulator needs to act in order to release the energy of this whole sector.
	I know that the Government are constantly concerned that no one sector should be favoured above the other, but it is important to recognise that this sector is distinctively different. If I could draw his attention to one example that may help clarify the matter-and which I have raised with the regulator, which acknowledges that it is clearly a problem. This is based on a communication that I received from someone involved as a financial adviser, who directed me towards a report done by Nesta in collaboration with Worthstone called Financial Planners as Catalysts for Social Investment. The response that they got back in the course of this work made it clear that the regulatory environment is not yet appropriate for this sector. The report contains quotes such as:
	"The social investment asset class, due to its early-stage of development lacks the regulatory clarity of other markets".
	That lack of clarity is turning into a real problem. It is not clear, for example, that an independent financial adviser can advise a client on a social investment because the return is a combination of some sort of more traditional manner of financial return, but also of a social benefit-and how is that to be measured? More to the point, how is it to be set within the suitability requirements that financial planners have to observe when they advise clients? The report states:
	"Ultimately, there is a need for the FSA"-
	which I suppose is the FCA now-
	"to establish clear guidelines around suitability to provide financial planners with a frame of reference. Consistency is required, together with a set of understood and agreed practices and procedures".
	That is one small example. Rather than tackle this issue by issue and try to hoe the ground in the most difficult kind of way, we should make sure that the regulator clearly understands that they need to act in a way that would enable this industry to develop to its full potential. That would accelerate the flow of funding, and I believe that as an economy we would only benefit from that.

Baroness Hayter of Kentish Town: My Lords, I first apologise to the Committee, because I would like to degroup Amendment 128AA, which is in this group. I know that the Minister has had minutes' notice of this, but I apologise to others. It is an important issue, and clearly we will return to that.
	I support the amendment moved by the noble Lord, Lord Phillips, and I will also speak to Amendment 104ZA. As we have heard, social enterprises are businesses that trade to tackle social problems and improve communities, people's life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community. So when they make profits, society profits. They do not make profits for the shareholders. In future, perhaps we should adopt the words of the noble Lord, Lord Hodgson, and call them not-for-profit distribution, NFPDs, which may be the new word for them.
	Funding is certainly needed to start up enterprises but, as critical, is the need to scale up and sustain them. That means getting access to modest and responsible sources of finance which will grow profits and jobs in this case, and make the local and national economy work. Appropriately funded social enterprises can lead an economic fight-back in the most deprived communities. The more deprived the community, the more likely you are to find social enterprises working there. They reinvest in the community. Indeed, 39% work in the 20% most deprived communities. They employ more people relative to turnover than mainstream small business and are outstripping other SMEs in terms of growth and sustainability. Just as access to funding can unlock the social enterprise sector's potential, so it is the single largest barrier to the sustainability of this sector. Last year, 44% of respondents to a survey said that they were hampered by the availability and affordability of finance.
	I make no apology that our Amendment 104ZA asks the FCA to discharge its general functions in a way that promotes growth and development of social finance and social investment. We ask that it should promote competition. This is, if you like, an emerging market, which needs a little help at the moment. I think that the word "promote" is not too dangerous but if the Minister would accept "enable", I would settle for that. There is a distinctive difference to this sector. I hope that our regulatory system is big enough to engage with it.

Lord Lucas: My Lords, one of the reasons why the likes of Wonga charges high rates of interest is that its formula for doing business is mechanical. What is required in order to be able to offer proper rates of interest on small amounts of money to people who are not well off is trust, knowledge and community. That is what this sector sets out to provide. Armed with that, it is capable of giving a much better deal to borrowers without imperilling those who are lending money. It is a thoroughly worthwhile sector of the financial industry.
	We need to ask the FCA not to promote it but, as the noble Baroness, Lady Hayter, says in her late revision, to enable it. The Government and regulation stand in the way. They give the big banks privileges which are not extended to small lenders. Some of them probably cannot be. I do not know that there is any way in which the £85,000 guarantee can be got down to these sorts of institutions. But they impose immense tax differentials so that you can end up not being able to offset losses if you have made them in community lending. As the noble Baroness, Lady Kramer, says, you can end up not knowing as a financial adviser whether you are allowed to mention these sorts of investments. We need a financial regulatory structure that gets out of the way, levels the playing field and gives these businesses a fair opportunity.

Lord Sassoon: My Lords, let me begin by saying that, as with the previous group, I wholeheartedly support the sentiment underpinning these amendments. The Government want markets which serve the wider economy, underpin growth and contribute to a more prosperous society as a whole. We want more proactive and judgment-based regulation, and we want the FCA to be tough and decisive in identifying and acting on bad practice in the financial services sector.
	The Government have been very clear that they want social ventures to create positive change in our society and that to achieve this we need to make it easier for them to access the capital and advice they need. There is a growing social investment market which seeks to combine financial return with social impact. Investors are often willing to accept higher risk and a lower financial return because of the social value that their investment can make. However, as has also been noticed, the market is embryonic and needs support. The Government are committed to providing that support. In a moment, I will describe how we seek to do that. Before I do so, I will turn to some of the specific amendments to which noble Lords have spoken.
	There are a number of reasons why I cannot support Amendments 104, 104ZA, 120, 137, and 139. First, where their intention is to promote social investment, that is simply not an appropriate role for the regulator. Although I agree with my noble friend Lord Phillips of Sudbury that the Government need to act in support of the social investment sector, we will not create a healthy UK financial services market, including for social financial services, by giving the FCA the job of taking forward what should be and is part of the Government's wider social policy agenda. Let me be clear: the FCA's job should be to administer a regulatory regime, policing it so that consumers are appropriately protected, regardless of what they invest in, that there is effective competition, and that markets are clean and operate with integrity.
	Secondly, where the intention behind the amendments is to-

Lord Phillips of Sudbury: I am sorry to interrupt my noble friend, but he did make a provocative remark just now, I suspect without realising it. He said that I was asking in these amendments for the FCA to "take forward" the social investment market. That is not the case. These amendments are couched extremely carefully, and not in any proactive way. To take Amendment 104, they merely ask the FCA,
	"so far as is compatible with acting",
	in accordance with "its operational objectives", to take,
	"account of the distinctive features of social investment",
	and not to inhibit the development of it. On no basis can that be characterised as asking the FCA to "take forward". It is merely asking the FCA to note the particularities of this sector and not to impede it.

Lord Sassoon: My Lords, we will have to disagree on the construction of some of the words here. Taking some of the amendments in the group, I appreciate that some of them are couched in the way in which my noble friend has just elaborated. However, for example, Amendment 103 inserts into new Section 1B(4) the words "and society" at the end of a very critical recital of what the FCA must do. It says it must,
	"discharge its general functions in a way which promotes effective competition in the interests of consumers and society".
	I accept that it is all driven with an override,
	"so far as is compatible with acting",
	in a way that advances the consumer protection objective, but it would add something which is tantamount to asking the FCA to be proactive in driving forward the social objective.

Lord Hodgson of Astley Abbotts: I am sorry. The hour is late, but that simply cannot be the construction. As I explained in my remarks, I could not support the amendments of the noble Baroness, Lady Hayter, because it said "promote". The four that I have signed up to, and the only four, are the ones which are entirely neutral, and all they are is enabling. With the greatest respect to my noble friend, who has dealt with us with courtesy and kept smiling despite the most enormous amount of provocation, the fact of the matter is that a lot of what he is saying is about investor protection in conventional investments. We are not talking about conventional investments here; we are talking about social investments, where the parameters are entirely different. The Treasury will persist in seeing it as a profit-making type of investment, as opposed to a profit and a social return. It simply cannot get it into its head that this is a different type of investment. It keeps writing for my noble friend speaking notes that do not recognise that difference.

Lord Sassoon: My Lords, one of the problems is that I am speaking here to a group of amendments. If we had longer or they were all degrouped, we could tease out one from another in more detail. I appreciate that some are more directive than others. However, perhaps I may move on to my second area of difficulty here. It probably will not help but I have a number of difficulties with this group of amendments.
	Where the intention behind the amendments is to ensure proportionate regulation of this budding social investment sector, I reassure the Committee that the FCA will indeed take a proportionate and risk-based approach. Both regulators must take a proportionate approach to the regulation of small or socially orientated firms, particularly in comparison with large and complex banks.
	My noble friend Lord Phillips of Sudbury referred to new Section 137R, which enables different rules to be made in relation to different authorised persons. I could also draw the Committee's attention to new Section 1C(2)(a), which requires the FCA to have regard to the differing degrees of risk involved in different transactions. Another is new Section 3B(1)(b), which requires the FCA to have regard to the principle of proportionality. Therefore, I believe that there are appropriate layers of protection there without this series of amendments highlighting the social investment sector in the way that they seek to do.

Lord Phillips of Sudbury: My Lords-

Lord Sassoon: Perhaps I may finish this part of the argument and then of course I will let my noble friend come in again. I believe that this proportionate approach that I have described will be vital in supporting effective competition, as well as helping the social sector, and the requirement to make regulation proportionately has to be an important tool in delivering that. However, equally, consumers have to be reassured that if they deposit money with, or buy financial products from, socially oriented financial institutions, they will be subject to the same level of protection and security as would be the case with any other institution. My noble friend may come back and say that that is not what the words actually say. He compared the activity of the big banks with the very well meaning institutions-which I accept they are-in this budding sector. Nevertheless, we have to be very clear and careful in making sure that those who deposit money are subject to the protection that they would expect, regardless of whom they transact with. I believe that in this area the Bill as currently drafted will deliver a proportionate balance for both regulated firms and consumers. I will continue to listen to the full range of arguments on this important issue and we will continue with important strands of work.
	My noble friend Lady Kramer referred to the ability of financial advisers to advise on social investments as an asset class. I agree that this is a concern. That is why it is one of several regulatory issues that are currently being considered by the Cabinet Office review. Therefore, there are other avenues through which these issues are being actively considered, as they should be.

Lord Phillips of Sudbury: I am grateful to my noble friend for giving way. I am sorry to detain the Committee at this time of night but this is an important group. My noble friend Lord Hodgson of Astley Abbotts made one extremely telling intervention. I recognise what a difficult task my noble friend the Minister has in piloting this incredibly complicated measure through this place. He called in aid-reasonably, because I myself referred to it-new Section 137R, which is headed "General supplementary powers". I quoted from the first part of that new section in what I said. My point, which I do not think my noble friend has taken account of, was, and remains, that unless there are some indicators in the first part of the Bill as to the considerations that are legitimate for the regulator to take into account, being naturally conservative, it will not take them into account. It will not differentiate. The wording in Amendment 103 therefore adds "and society" to the part of the new section that instructs FCA as to what it must do. That section says:
	"The FCA must, so far as is compatible with acting in a way which advances the consumer protection objective or the integrity objective, discharge its general functions in a way which promotes effective competition in the interests of consumers".
	The Minister objects to the addition of the words "and society". Surely we have learnt over the past three years that the objectives of consumer protection, integrity and competition depend on a financial sector that, in promoting competition, does not just take into account the interests of its customers but also of society at large. Society is what social investment is about. It slightly gives the Government's game away for the Minister to argue as he did. I repeat that this important section that he referred to, which gives the FCA and the PRA the power to make rules, seems to cut off the prospect that he afterwards says is there; namely, the power to differentiate between different types of financial organisation, including the social financial organisations.
	I am sure this is a discussion we perhaps had better have outside the Committee. It is late at night. I am only registering-I think I have some support in this-disappointment that the Government are not construing their own provisions in a way that seems consistent with how my noble friend started when he said they were wholly behind the development of the social finance sector.

Lord Sassoon: I will keep saying it and no doubt we will have to disagree on this. On the narrow point of new Section 137R, that is a power to make different provisions. However, the other relevant provisions that sit with it are duties. There is a duty to act proportionately and a duty to have regard to different degrees of risk. When it sets rules, the FCA will have to explain and justify those matters in the consultation processes it goes though. It cannot simply escape from this.
	I will again directly address the points made my noble friend Lord Phillips of Sudbury on Amendment 103. The same thing applies to Amendment 111. There are certain things that we can expect of the FCA and there are other things that would place entirely unrealistic expectations on it. When the FCA is assessing whether there is effective competition in a market, we can expect it to consider the needs of consumers and act on its assessment. However, the needs of society as a whole are another matter entirely. It is not, and cannot be, the responsibility of the FCA to consider, even in a passive way-which I agree is different here from the way that it is formulated in some of the other amendments-what the best outcome for society is at any given point. It simply does not have the mandate to do that. It would not have the expertise or the powers fully to act on its findings. This is not in any way to say that these are not important matters. It is simply that I contend, as with the previous group of amendments, that these are judgments not for the FCA but the Government. The Government will not shirk these judgments.
	I have referred to a number of the initiatives that are going on and there are others that I could mention, such as the Treasury's current review of financial barriers to social enterprise. Recommendations from that review will sit along with the community interest tax relief revisions that were announced at the Budget. There are multiple strands of work at the Treasury and the Cabinet Office that are aimed, among other things, at making it easier for investors to invest in community development finance institutions. Those must go on. They are not the proper province of the FCA.

Baroness Kramer: I am sorry and recognise the late hour, but if we let this opportunity go we will not get it back again. I wonder whether the Minister will-even if it is afterwards-sit back and think through this issue. I am a simple person. I come from a banking background where you look at outputs. We know that investors are seriously interested in these kinds of products. We know that there is a need on the far side, whether individuals, small start-up businesses, charities, social enterprises and whatever else. In the middle we have a regulatory pattern of behaviour. If the regulation was not acting as a barrier, surely the outputs we would have would be a thriving community development banking sector, a thriving social investment sector, and a thriving social bond market. We can look at other countries and see these things in far more advanced states of development than we have. The conclusion has to be that the regulator is playing a significant role as a barrier in this process. If we cannot tackle that in this legislation, how on earth can we tackle it?

Lord Hodgson of Astley Abbotts: The FSA currently has responsibility for one particular sector of the social enterprise movement-the industrial and provident societies. I suggest that the Minister asks his officials in the morning to ring the FSA and ask how many people are working in the industrial and provident society section. The answer is half.

Lord Sassoon: I am not quite sure what happens to the other half of this unfortunate person.

Lord Hodgson of Astley Abbotts: They only work part time.

Lord Sassoon: I understand. I will check on that but I hear what my noble friend says. The FSA is under pressure in a lot of areas. I stress again that I do not mean to say that there are no barriers. I have explained the ways in which we are looking at them but this is a Bill about the regulatory structure. There are other avenues through which the structure of the industry is being looked at, not least through the Bill that will enact the Vickers reform. In the most fundamental ways we are prepared to take on the structure of the industry. It is just that we want to keep this Bill and this architecture to what it is intended to be, which is about financial regulation and not about wider social issues, however important they are, even though there is great interlinkage with what we are talking about in the Bill.
	I should do justice to Amendment 109, which is the last one that I have not directly touched on. It is another amendment over which I have some concerns. It seeks to ensure that the FCA considers social responsibility in advancing its market integrity objective. Social responsibility sits rather oddly alongside the other matters listed in new Section 1D that elaborate on what is meant by integrity. All the matters in the non-exhaustive definition of integrity in that section have a clear expectation of action associated with them. The FCA will act to prevent or root out and punish activities such as insider dealing or other market misconduct and abuse as well as money laundering, terrorist finance and corruption; it will test the reliability and robustness of computers and wider systems and controls to see whether it can guarantee the operational soundness, stability and resilience of the system, its orderly operation and the transparency of the price-formation process. These are all concrete actions, critical to ensuring that the financial system is effective in meeting the needs of people who use it and is, I suggest, rather different from social responsibility which very much stands out from that list.
	Before I let my noble friend come in again, I want to repeat that determining what social responsibility is and how it should be delivered is a matter for the Government.

Lord Phillips of Sudbury: I am grateful to my noble friend for giving way and hope this will be my last intervention. In new Section 1D, the integrity of the UK financial system-which is of course crucial, because it is one of the FCA's operational objectives-is said to include soundness, stability and resilience. In Amendment 109, I have suggested adding "and social responsibility". The Minister asks what on earth social responsibility has to do with the FCA which is all about banking things such as stability and soundness and so on. My point is that we are dealing here with a financial sector that marches to a completely different drum. It is about social responsibility: that is its purpose. For that not to be an element in the section of the Bill which, in effect, defines integrity, first, does not face that reality, and, secondly, demeans it. Thirdly, I hark back to the matters which the two regulators have the duty to have regard to when making rules and so on. Lastly, I put it to the Minister that if we had social responsibility in this list, it would mean that in future the regulator could and indeed should look at, for example, mis-selling. Mis-selling is not a crime, it does not impact on the soundness, stability or resilience of the bank, but it is none the less a practice which I am sure he will agree has been powerfully damaging to all concerned. That phrase in this part of this section would, I believe, put the regulator on its mettle to look beyond the conventional issues and take account of the social impact of some of the practices of the banks.

Lord Sassoon: My Lords, I cannot agree with that construction of what is intended here. Mis-selling very clearly comes under new Section 1C, the consumer protection objective. We have, perhaps, teased out of this discussion that if we are talking about social responsibility in the sense that my noble friend intends and in the way he has described it, it is more linked to the consumer protection objective, rather than the integrity of the UK financial system. The difficulty may partly be in the different uses of "integrity". We are not talking in new Section 1D about integrity in the direct sense of the behaviour of the individuals in the system. We are talking about the wholeness and stability and soundness of the financial system, which is why these particular factors are listed in Section 1D(2). They are linked to concrete actions that would be expected of the FCA, examples of which I have just given. We may be partly mixing up apples and pears here because I do not think that social responsibility fits into this clause of the Bill.
	If my noble friend came back and tried to attach it to proposed new Section 1C, I would still argue that social responsibility is a matter for government. Social responsibility in the sense that he is talking about will go to the heart of what the Joint Committee will look at in response to the LIBOR scandal. The responsibility of the participants in the sector will be tackled in different ways.
	I have tried to reassure the Committee-I can see that I may have given only partial reassurance-that the Government firmly believe that the financial industry should serve society. There is a big unfinished agenda and the Government will not shy away from driving it forward. The right way to do so is through different avenues but not through expecting the FCA to be responsible for these particular areas. I ask my noble friend to consider withdrawing his amendment.

Lord Lucas: My Lords, while my noble friend is doing that, perhaps he will say something about the effect that Amendment 103 would have in a practical sense. If faced with the words "and society" at the end of the subsection, how would the FCA's decisions be different? Under what kind of practical circumstances would it make a difference?

Lord Phillips of Sudbury: My Lords, that is a strictly out-of-court request at the moment. However, if the Committee will indulge the noble Lord, Lord Lucas, and myself, I will give him a short answer.
	I am concerned, and those who have supported the amendment and the whole of the social investment sector are deeply concerned, that there is no single recognition in 168 pages of its special nature-not one single indication. I agree with them-others have made the point-that that is a profound omission given where we are, the financial sector we have got and the innovative drive and importance-potentially more than actually-of this new social sector.

Lord Hodgson of Astley Abbotts: Does the noble Lord not accept that we have a very immature sector still? We have not got the right corporate forms that will combine the different streams of investor, whether it be a Government, a charity which is running the scheme, a grant-giving charity or private investors, who may be corporate or private individuals. We must be very careful not to put too much weight on the structure too early because if we arouse expectations about what it can deliver and it crumbles away, not only will the sector be disappointed but-dare I say it with my noble friend on the Front Bench?-the regulator will say, "I told you so". We need to be very careful about that.

Lord Phillips of Sudbury: I wholly agree. That consideration is not at all incompatible with the intent of this group of amendments-indeed, my noble friend has strongly supported the group. It is partly because I share his concern about the immaturity of this new branch of the financial sector that I want it to be incorporated within the regime that will follow on from this massive piece of legislation.
	At this time of night and with this tiny number of people present, the Minister can be safe in the expectation of there not being a vote called, but I say to him that we must, by hook or by crook, have included in the Bill by Report some form of words which recognises this new sector and gives it proper allowance and scope to develop and thrive, because, as everybody agrees, including the Government, it has the potential to be hugely important in the future. If the Minister will agree to meet between now and Report, which I hope will be after the Summer Recess, we may be able to concoct something which satisfies the new financial sector and those of us who supported the amendment. I do not think that that is beyond the wit of man. I beg leave to withdraw the amendment.
	Amendment 103 withdrawn.
	Amendments 104 to 104ZA not moved.
	House resumed.

House adjourned at 10.42 pm.